In an industry dominated by just a handful of mega-corporations backed by billions in state subsidies, Intel Corp's (NASDAQ:INTC, ETR:INL)’ ambition to fortify its presence in the semiconductor manufacturing sector is commendable.
But the US tech firm’s latest financial results prove that this goal is not coming easily.
Intel’s foundry division (foundries being the highly specialised manufacturing plants where chips are made) reported an operating loss of $7 billion for 2023, compared to an operating loss of $5.2 billion in 2022.
Total segment revenue was $18.9 billion, a decrease from $27.5 billion in 2022.
It was the first time Intel spun out its foundry segment earnings figures. While this is a sign that the group is getting serious about chip manufacturing, it also exposed the segment to heightened public scrutiny.
To quickly recap the arcane world of chipmaking, the Taiwan Semiconductor Manufacturing Company is both the largest and most technologically advanced foundry in the world, followed by South Korea’s Samsung Corporation, with smaller competitors, including Intel, Qualcomm and GlobalFoundries as distant competitors.
TSMC brought in over $75 billion in revenues in its last financial year, with net income exceeding $34 billion.
The chasm between Intel’s and TSMC’s revenues is even wider than these top-line figures suggest. Of Intel’s $18.9 billion in revenues, $18 billion was ‘internal revenue’, meaning 95% of Intel’s foundry operations in the year were for its own chips rather than external clients.
TSMC benefits from an incumbent position as the foundry of choice for the world’s largest chip designers, including Nvidia Corporation, Apple Inc (NASDAQ:AAPL, ETR:APC) and AMD.
The US government’s CHIPs Act aims to bring some of this commerce onshore, hence why Intel was awarded some $20 billion from the Biden administration to strengthen its domestic foundry capabilities.
If Intel’s earnings figures are anything to go by, this investment alone is not enough. Despite this investment, TSMC (and Samsung) retain a significant technological edge over Intel, meaning few US blue chips are likely to onshore their chip manufacturing processes for the time being.
Intel’s chief executive Patrick Gelsinger reckons the group’s foundry division “is going to drive considerable earnings growth for Intel over time”, he told reporters this week.
He also called 2024 “the trough” for foundry operating losses, while predicting a breakeven sometime before 2030.
Gelsinger noted that Microsoft has signalled interest in using Intel’s foundries, with $15 billion in sales already booked in.
Time will tell if Intel can close the technological and earnings gap with its competitors.
In the meantime, the market expressed caution following yesterday’s results- shares are tipped to open 4.7% lower when markets open on Wednesday.