Intel still trailing far behind main rival
Intel shares fell nearly 7% on Wednesday, as ballooning losses at its contract chip-making business signalled the company could take years to catch up with the profitability of rival Taiwan Semiconductor Manufacturing (TSMC).
Disclosing new financial details for its foundry unit late on Tuesday, Intel said that the business’s operating losses widened to $7bn in 2023 from $5.2bn in 2022.
“We expected foundry economics to be bad, and they truly are,” said Bernstein analyst Stacy Rasgon. “We likely have several years of substantial headwinds still in front of us.”
If the share price losses hold, Intel will lose more than $12bn in market value.
The company has spent billions of dollars to return as the dominant maker of cutting-edge chips, a position that it lost to TSMC, which is now the world’s biggest contract chipmaker.
The US chipmaker’s capital investments classified as “construction in progress” totalled $43.4bn to December 30, 2023, versus $36.7bn a year earlier.
Intel also plans to spend $100bn on plants across four states in the US, in part helped by funding from the US Chips Act.
CEO Pat Gelsinger said operating losses for its contract chip-making business would peak in 2024 before breaking even by about 2027.
The business accounted for about 35% of Intel’s total net revenue in 2023.
Intel expects the foundry business to have a gross margin of about 40% by 2030, which would still trail the 53% margin TSMC reported for the fourth quarter of 2023.
At T$625.5bn ($19.52bn) in just the final three months of the 2023, TSMC’s revenue is also much larger than the $18.9bn in sales Intel’s unit had in 2023.
TSMC’s “geographic and talent advantages, as well as their established Rolodex of tier-1 customers, have jolted investor confidence in Intel’s foundry prospects,” said Parv Sharma, a senior analyst at research firm Counterpoint.