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Chipzilla's €8.3 billion Foundry fiasco

by on03 April 2024

Huge operating losses

Intel revealed staggering operating losses for its foundry division, dealing a heavy blow to the chip colossus in its quest to reclaim lost technological dominance against Taiwan Semiconductor Manufacturing.

Intel disclosed that its manufacturing arm suffered a monumental €8.3 billion in operating losses for 2023, a sharper downturn than the €6.1 billion loss in the previous year. The division's revenue also plummeted to €19.2 billion for 2023, marking a significant 31 per cent drop from €26.67 billion the year prior.

Following this revelation, Intel shares nosedived by 4.3 per cent as the documents were filed with the U.S. Securities and Exchange Commission (SEC).

Speaking to investors, CEO Pat [kicking] Gelsinger painted a bleak outlook, designating 2024 as the nadir for the company's chipmaking business. Gelsinger is projected to reach breakeven on an operating basis around 2027.

Gelsinger blamed the beleaguered foundry business for misguided decisions, notably the rejection of extreme ultraviolet (EUV) machines by the Dutch firm ASML a year ago. Despite their hefty price tag exceeding €147 million, these machines purportedly offer superior cost efficiency compared to preceding chip manufacturing equipment.

As a result of these missteps, Intel has outsourced around 30 per cent of its wafer production to external contract manufacturers like TSMC, Gelsinger admitted, to reduce this figure to roughly 20 per cent.

To reverse the trend, Intel has now shifted to using EUV tools, which are expected to cover a larger share of production needs as older machinery ages.

"In the post-EUV era, we see that we're very competitive now on price, performance, and back to leadership," Gelsinger said. "And in the pre-EUV era, we carried a lot of costs and were uncompetitive."

Intel's revival strategy hinges on attracting external companies to use its manufacturing services. The company ambitions to invest a colossal €102 billion in constructing or expanding chip factories across four US states.

As part of this strategy, Intel pledged to begin reporting the outcomes of its manufacturing operations as a standalone entity, a testament to its unwavering commitment to closing the gap with primary chipmaking rivals TSMC and Samsung Electronics).

Last modified on 03 April 2024
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