$INTC: Room to zoom or Doomed to gloom?
Friday, 05 April 2024.
For the week Intel's shares fell by -12.60% to 38. 71 per share.
This came about after Intel’s SEC filing for its foundry business, revealed a larger than expected operating loss.
It was an operating loss of $7 Billion in 2023, on the back of $18.9 Billion revenue.
Comparatively speaking, it is a wider loss than the $5.2 billion incurred in 2022 on revenue of $27.5 billion.
To be “fair”, this was the first time Intel reported its revenue for its foundry arm on its own, separate from its product business.
Historically, Intel has:
- Designed its own chips.
- Carried out its own manufacturing.
And report only the final chip sales in its quarterly earnings report.
What Went Wrong?
CEO Pat Gelsinger reported that Intel’s bad decisions has hurt its foundry business.
By not purchasing the $150 million $ASML Holding NV(ASML)$ ’s extreme ultraviolet (EUV) machines, resulted in Intel incurring higher costs of production for its chips.
Partially as a result of the missteps, Intel has to outsource about 30% of the total number of wafers to $Taiwan Semiconductor Manufacturing(TSM)$ .
It endeavours to reduce the reliance from 30% to 20% in the near future.
Intel has now switched over to using EUV tools, that will cover more and more production needs as older machines are phased out.
Post EUV era, Intel is very competitive on (a) price, (b) performance and (c) back to leadership role.
More importantly, it expects the cost-effectiveness of the new EUV tools to help the foundry business break even by 2027; in 3 years' time.
Intel plans to spend $100 billion on building or expanding chip factories in 4 US states of (1) Arizona, (2) Ohio, (3) Oregon and (4) New Mexico.
Its turnaround hinges very much on persuading outside companies to use its manufacturing services.
So far, Intel has confirmed that $Microsoft(MSFT)$ would use its foundry services, and it has $15 billion of revenue for foundry already booked.
All Is Fine, Now?
Not so fast.
Even though the issues seemed to have been resolved, the huge deficit in operation gap remains outstanding.
Realities & Concerns.
- With Intel heavy investment in its foundry business, and increased competition in the AI-chip space, some analysts are concerned whether Intel can weather the storm?
- With increasing restrictions layered by the Biden administration, Intel’s chips sales to China have largely been curtailed.
- Intel’s ability to source for China-equivalent customers with an equally healthy appetite for its chips remains a source of contention.
As echoed by CFRA Research, Senior Equity Analyst Angelo Zino:
- Whether Intel is able to find clients for their foundry business, for growth - its still up in the air.
- Looking at some of the targets Intel has provided, FY 2030 is still being mentioned.
- The biggest disappointment is that Intel’s foundry business is not going to hit operating margin break even until 2027.
- This implies that FY 2025 & 2026, remains a slower ramp than its competitors.
- Will Intel finds support at the $27 or $32 price band in the coming week?
- That's the magic question.
At this point, all is not well down yonder really, (to me) !
- Do you think Intel will be able to recover from its fall?
- Do you think Intel will be able to breakeven and be profitable after 2027?
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So, Pat Gelsinger has to undo this mistake to renew the high-end chips foundry business. With that, INTC alone may not be able to hit the critical mass to be profitable. Hence, he has to separate out the foundry business as a standalone operation n hopes to attract chip designers customers to make the division profitable. Can the chip designers trust his action of doing so is a big question mark ‼️ Else it will be kept losing money or continue to collect US government handouts ❗😁
if you invested $1000 in year 2000 (price was $78), after 24 years, today you have $520 haha.
It’s also a semiconductor stock, but the gap is really big.
Haha the stock is doing so terrible
Pls help to "Re-post". Tks! Rating is important (to me).
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
Good