Intel's financial update shows plant losses widening in 2023

(Bloomberg) — Intel said its factory revenues are declining and losses are widening, showing the challenges of a costly expansion plan.

Most read from Bloomberg

Sales of Intel Foundry, a new division of the company responsible for manufacturing operations, reached $18.9 billion in 2023, down from $27.5 billion the previous year, the company said in a statement on Tuesday. Operating losses in the new division widened to $7 billion from $5.2 billion in 2022.

Intel is providing a more detailed picture of its finances as part of a turnaround plan laid out by CEO Pat Gelsinger. It publishes results from the factory network as a step toward making it operate more independently. The company seeks to make chips for other companies, and giving it some separation from the rest of Intel is vital to that strategy.

The company expects 2024 to be the peak of its losses and for Intel Foundry to be operationally profitable “halfway between now and the end of 2030.” The chipmaker also appointed Lorenzo Flores as CFO of Intel Foundry.

Intel shares fell more than 2% in extended trading. It fell 1.3% to $43.94 in regular trading, bringing its year-to-date decline to 13%.

Intel's move toward outsourcing chip production — known as foundry manufacturing — is one of the biggest shifts the company has seen in its history. Gelsinger's comeback efforts also include restoring Intel's previously inaccessible technology advantage — something the chip leader lost in the years before he took the reins in 2021.

Taiwan Semiconductor Manufacturing Company currently dominates the foundry market and has surpassed Intel in total revenue. That company had sales of $69.4 billion for 2023 and net income of $26.9 billion. Its gross margin — the percentage of sales remaining after deducting the cost of production — was 54%. Its sales are expected to expand by 20% in 2024 to reach $83.4 billion.

See also  Stocks soar ahead of Powell Jackson Hole's speech

Intel's closest competitor to its traditional business is Advanced Micro Devices Inc., which had revenue of $22.7 billion and net income of $854 million last year. The gross profit margin was 50%. This year, the company is on track to achieve a 14% jump in sales, according to analysts.

Meanwhile, Nvidia has quickly emerged as the industry's star. Although it doesn't yet have TSMC's revenue, its sales more than doubled last year — and another stratospheric gain is expected this year. The company has a significant leadership in the artificial intelligence accelerator market, which helps companies develop artificial intelligence models.

Intel has embarked on a record expansion of its factories in the United States and Europe, taking advantage of government incentives such as the Chip and Science Act. But even with this support, it is an expensive project that has put investors on edge.

The company telegraphed earlier this year that its manufacturing finances were “under significant pressure” as the chipmaker tries to regain its technological edge and build out its infrastructure.

“We see ample opportunity to drive improvement,” CFO Dave Zinsner said during the last earnings call in January.

But the company has also had some wins. In February, Intel announced that Microsoft's in-house chip design efforts would become a foundry client. Gelsinger said he is ahead of schedule in getting other clients to sign up, but is unable to give their names because they don't want to go public.

Most read from Bloomberg Businessweek

©2024 Bloomberg L.P

Leave a Reply

Your email address will not be published. Required fields are marked *