Intel Shares Slide After Foundry Business Posts $7 Billion Loss

Investors have reacted negatively after Intel late on Tuesday disclosed a huge operating loss for its foundry contract chip-making business.

Intel outlined a new financial reporting structure for its foundry business on Tuesday, but a regulatory filing revealed that the unit posted operating losses of $7 billion in 2023, compared with a $5.2 billion loss in 2022.

News of the ballooning operating loss at Intel’s contract chip-making business did not please Wall Street, and Intel’s share price closed Wednesday 8.2 percent down at $40.33.

Share price hit

The increased operating loss of Intel’s contract manufacturing business signalled to investors the years it could take Intel to catch up with the world’s largest contract chip manufacturer, Taiwan Semiconductor Manufacturing Co. (TSMC).

“We expected foundry economics to be bad, and they truly are,” Bernstein analyst Stacy Rasgon was quoted by Reuters as saying. “We likely have several years of substantial headwinds still in front of us.”

The share price decline has knocked billions off Intel’s market value, which is now sitting at a market cap of $186 billion.

Heavy spending

Intel has been spending billions of dollars to regain its position as the world’s dominant maker of cutting-edge chips.

In February 2024 Intel’s chip contract manufacturing division, Intel Foundry Services (IFS), signed a deal with Microsoft, that will result in it manufacturing a custom chip for the software and cloud giant.

Intel’s heavy spending was shown in the regulatory filing, which revealed that its capital investments classified as “construction in progress” had totalled $43.4 billion as of 30 December 2023, compared with $36.7 billion a year earlier.

Intel said last month that it plans to spend $100 billion on plants across four US states, in part helped by funding from the U.S. Chips Act.

CEO Pat Gelsinger reportedly said operating losses for its contract chip-making business would peak in 2024 before breaking even by about 2027. It accounted for about 35 percent of Intel’s total net revenue in 2023.

Intel expects the foundry business to have a gross margin of about 40 percent by 2030, which would still trail the 53 percent margin TSMC reported for the fourth quarter of 2023.

Intel is expected to file its first quarter 2024 results on 25 April.