Intel (NASDAQ:INTC) stock fell 5% overnight after the chipmaker reported a $7 billion loss for its foundry business.
The chip company has been trying to “re-shore” manufacturing to the U.S., but it has suffered several setbacks.
INTC stock was selling for $41.40 per share before the market opened, its market cap falling below $176 billion. As of this writing, it is currently down 6.5% for the day.
Gelsinger’s Law
Intel CEO Pat Gelsinger made a huge bet on chip manufacturing when he returned to the company in 2021. The Biden administration has backed his play through the CHIPS Act, fearing dependence on China and Taiwan.
But a financial update shows the strategy is floundering.
The foundry business lost $7 billion on sales of $18.9 billion in 2023, Intel reported. Sales were down from $27.5 billion in 2022, while losses widened from $5.2 billion. Most of the sales came from Intel itself, which has separated the foundry numbers from the design business.
Gelsinger called 2024 “the trough” of the business, blaming the “weight of past decisions.” Intel was slow to adopt the Extreme Ultraviolet (EUV) technology pioneered by rival Taiwan Semiconductor (NYSE:TSM). EUV makes it possible to draw chip lines within a few microns of each other.
Intel’s roadmap for future products now shows it delivering chips with lines just 1.8 microns apart, or 18 Angstroms, by next year.
The rosy forecast belies harsh realities. Intel is having trouble finding trained workers. It is delaying the construction of its Ohio factory. It originally hoped to get the new fab running in 2025.
Intel recently got $8.5 billion from the government as it expands operations in Arizona. But experts worry whether there will be enough water to sustain it. A new fab there is due to open later this year.
INTC Stock: What Happens Next?
INTC stock is down about 10% year-to-date but up 15% for the past six months.
I said Intel’s move into manufacturing is important. I didn’t say it would be easy or quick.
As of this writing, Dana Blankenhorn had LONG positions in INTC and TSM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
