Intel's Foundry Fumbles, Stock Takes a Nosedive

Intel's Foundry Fumbles, Stock Takes a Nosedive
Intel's Foundry Fumbles, Stock Takes a Nosedive

Intel's Foundry Division Disappoints, Stock Plunges

Intel's stock plummeted after the company disclosed weak financial performance for its recently established foundry business. The unit, intended to make Intel a major player in the contract chip manufacturing market, failed to meet expectations.

Financial Losses and Slow Growth

Intel Foundry recorded a significant operating loss of $7 billion in 2023, a sharp increase from $5.2 billion the previous year. Revenue also declined by 31% to $18.9 billion. The unit currently relies heavily on Intel's internal operations for its business, with 95% of revenue coming from the company's own products.

Ambitious Targets Questioned

Despite Intel's goal of becoming the world's second largest contract chipmaker, analysts expressed skepticism about the foundry business's near-term prospects. CEO Pat Gelsinger stated that operating losses would peak in 2024, with profitability expected around 2027.

Transparency and Separation

Intel's decision to separate its foundry operations aims to provide greater transparency for investors and potential customers. However, analysts doubt the company's ambitious financial targets, such as achieving 60% gross margin and 40% operating margin by 2030.

No Split in Sight

Despite the separation of its businesses, Intel is not expected to follow in the footsteps of Advanced Micro Devices, which split into two companies. Analysts believe it is unlikely that Intel will split into a fabless chip design company and a foundry/manufacturing entity in the near future.

Government Support

Intel is benefiting from significant government funding under the CHIPS and Science Act, which aims to boost domestic semiconductor manufacturing. This funding provides a potential catalyst for the company's long-term growth.

Industry Position and Stock Performance

Intel's semiconductor manufacturing business ranks sixth among 33 stocks in IBD's industry group. However, the weak performance of its foundry division has weighed on the stock's price, which fell around 7% in morning trading.

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