Intel’s Slide in Stock Value Highlights Gap with Rival TSMC in Foundry Business Loss.

Intel’s contract chip-making business has been hit with significant losses, causing the company to take years to catch up with Taiwan Semiconductor Manufacturing Co. This news comes as Intel discloses new financial details for its foundry unit, reporting operating losses of $7 billion in 2023 compared to $5.2 billion in 2022. The U.S. chipmaker has been investing heavily to reclaim its position as a leading producer of cutting-edge chips after losing ground to TSMC. Intel’s capital investments under “construction in progress” amounted to $43.4 billion as of December 31, 2023, up from $36.7 billion the previous year. Additionally, Intel plans to spend $100 billion on plants in the U.S., with assistance from the U.S. Chips Act.

Intel’s CEO, Pat Gelsinger, projects that operating losses for the contract chip-making business will peak in 2024 before breaking even around 2027. This sector represents about 35% of Intel’s total net revenue in 2023, and the company aims for the foundry business to achieve a gross margin of approximately 40% by 2030, still behind TSMC’s 53% margin reported in Q4 of 2023.

Gelsinger notes that past decisions like not using extreme ultraviolet (EUV) machines from ASML have impacted the foundry business negatively. Intel has since transitioned to utilizing EUV tools.

The struggle of Intel’s foundry unit reflects the fierce competition in this crucial sector, where TSMC continues to dominate with a revenue of $19.52 billion in the final three months of the same year while Intel had sales of $18.9 billion in 2023.

Despite these challenges ahead for the foundry economics, analysts like Bernstein’s Stacy Rasgon expect several years of growth opportunities for companies like AMD and Nvidia that are well-positioned to capitalize on this competitive landscape.

In conclusion, Intel faces significant challenges ahead due to its struggles with profitability at its contract chip-making business and intense competition from Taiwan Semiconductor Manufacturing Co., but there are still growth opportunities for companies that can adapt quickly and innovate within this industry.

By Samantha Johnson

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