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Intel Financial Update Shows Losses at Factories Widened in 2023

(Bloomberg) — Intel Corp. said that revenue from its factories is declining and losses are widening, showing the challenges of an expensive expansion plan.

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Intel Foundry, a new division of the company responsible for its manufacturing operations, had sales of $18.9 billion in 2023, down from $27.5 billion the prior year, the company said in a filing Tuesday. The operating loss at the new division widened to $7 billion from $5.2 billion in 2022.

Intel is giving a more detailed picture of its finances as part of a turnaround plan by Chief Executive Officer Pat Gelsinger. He’s breaking out the results from the factory network as a step toward having it operate more independently. The business is seeking 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 that Intel Foundry will be profitable, on an operating level, “midway between now and the end of 2030.” The chipmaker also named Lorenzo Flores as chief financial officer of Intel Foundry.

Intel shares fell more than 2% in extended trading. They had been down 1.3% to $43.94 in regular trading, bringing its year-to-date drop to 13%.

Intel’s push into outsourced chip production — known as the foundry industry — is one of the company’s biggest transformations in its history. Gelsinger’s comeback effort also includes restoring Intel’s once-unassailable technology edge — something that the chip pioneer lost in the years before he took the reins in 2021.

Taiwan Semiconductor Manufacturing Co. currently dominates the foundry market and has eclipsed Intel in overall revenue. That company had 2023 sales of $69.4 billion and net income of $26.9 billion. Its gross margin — the percentage of sales remaining after deducting the cost of production — was 54%. And its sales are projected to expand 20% in 2024 to $83.4 billion.

Intel’s closes rival its traditional business is Advanced Micro Devices Inc., which had revenue of $22.7 billion and net income of $854 million last year. Its gross margin was 50%. This year the company is on course for a sales jump of 14%, according to analysts.

Nvidia Corp., meanwhile, has quickly emerged as the star of the industry. Though it doesn’t yet have the revenue of TSMC, its sales more than doubled last year — and another stratospheric gain is projected for this year. The company has a commanding lead in the market for artificial intelligence accelerators, which help companies develop AI models.

Intel has embarked on a record-setting expansion of its factories in the US and Europe, taking advantage of government incentives such as the Chips and Science Act. But even with that support, it’s an expensive undertaking that has put investors on edge.

The company telegraphed earlier this year that its manufacturing finances are “under significant pressure” as the chipmaker tries to restore its technological edge and builds its infrastructure.

“We see abundant opportunity to drive improvement,” Chief Financial Officer Dave Zinsner said during the most recent earnings announcement in January.

But the company has also had some wins. In February, Intel announced that Microsoft Corp.’s internal chip design effort will become a customer for the foundry business. Gelsinger has said he’s ahead of schedule in getting other clients to sign up, but is unable to name them because they don’t wish to go public.

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