4/4/2024

Intel shares fall due to competition with TSMC

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Key points:

  • Intel shares fell 7% due to deteriorating financial performance of contract chip manufacturing.
  • It may take Intel several years to catch up to TSMC’s profitability.
  • Intel published a report on the work of its foundry division, which recorded operating losses for 2023 in the amount of $7 billion.

On Wednesday, Intel shares suffered a significant decline, losing about 7% of their value. The reason for the fall was the deterioration in the financial performance of contract manufacturing of microcircuits. Experts estimate that it may take Intel several years to catch up with the profitability of its main competitor, Taiwan Semiconductor Manufacturing Co.

On Tuesday evening, Intel released a report on its foundry division, which recorded an operating loss of $7 billion for 2023. That’s $1.8 billion more than the company’s 2022 loss.

Ways to solve the problem

In recent years, Intel has invested heavily in efforts to regain its leadership in cutting-edge chip manufacturing. However, this position currently belongs to Taiwan Semiconductor Manufacturing Co., which is the world’s largest contract chip manufacturer.

As of December 30, 2023, Intel’s capital expenditures in construction in progress amounted to $43.4 billion, which is $6.7 billion more than a year earlier.

In addition, the company plans to invest $100 billion to build factories in four US states. This investment will be financed in part by funds allocated under the US CHIP Act.

Will Intel be able to recover?

Pat Gelsinger, CEO of Intel, predicts that operating losses from contract chip manufacturing will peak in 2024. According to him, by 2027 the business should reach breakeven level. In 2023, this segment accounted for about 35% of Intel’s total net revenue.

Intel also predicts that by 2030, the gross margin of the foundry business will be about 40%. At the same time, this is lower than TSMC’s profit margin, which was 53% in the fourth quarter of 2023.

TSMC’s revenue for the last three months of 2023 was $19.52 billion, significantly higher than the $18.9 billion Intel took in from its foundry division for all of 2023. Thus, TSMC is significantly ahead of Intel in this indicator.

From these data, we can conclude that Intel still has a long way to go to become a leader in the field of contract chip manufacturing.

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