Intel Stock Plummets Following Disclosure of Foundry Financial Troubles

Intel Stock Plummets Following Disclosure of Foundry Financial Troubles

Intel (INTC) stock fell Wednesday after the chipmaker disclosed worse-than-expected financial results for its fledgling foundry business. Wall Street analysts have expressed skepticism about the unit’s near-term prospects.




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Intel executives explained Tuesday evening how they divide the company’s operations into two main businesses: one selling finished products and the other providing chipmaking services. The Intel Products unit is a customer of the Intel Foundry business.

Currently, Intel Foundry derives 95% of its business from the Intel Products unit. But Intel has set its sights on becoming the world’s second-largest contract chipmaker, behind Semiconductor manufacturing in Taiwan (TSM).

However, analysts were shocked by Intel Foundry’s worsening losses. Manufacturing activity reported an operating loss of $7 billion for 2023, compared to an operating loss of $5.2 billion the year before. The unit had revenue of $18.9 billion in 2023, down 31% from 2022’s $27.5 billion.

Intel shares fall on the news

During a investor presentationChief Executive Pat Gelsinger said operating losses at the foundry business will peak in 2024. Intel expects the unit to break even by about 2027, he said .

“It wasn’t pretty, but we applaud management for their nerve in admitting that the Foundry business will take years to properly scale up,” Hans Mosesmann, an analyst at Rosenblatt Securities, said in a client note. He reiterated his Sell rating on Intel stock with a 12-month price target of 17.

In the morning discussions on the stock market todayIntel stock fell about 7% to 40.92.

By separating its two core businesses, Intel provides more transparency to investors and potential foundry customers, analysts say.

Not a prelude to separation of companies

Wedbush Securities analyst Matt Bryson expressed doubts about Intel’s financial goals.

“The main criticism yesterday seemed to be about Intel’s ambition to achieve a gross margin of 60% and an operating margin of 40% in 2030,” Bryson said in a client note. “While the target echoes Intel’s previous long-term model, the timeline is 3-4 years behind Intel’s prior expectations.”

Even if Intel separates its two core businesses internally, don’t expect it to split into two companies like Advanced microsystems (AMD) made with Global Foundries (GFS), said Daniel O’Regan in a client note. O’Regan is managing director of equity trading at Mizuho Securities.

“While some may see this as a potential step toward splitting the company into a fabless chip company and a foundry/manufacturing focused company, such a move is unlikely to happen in the next few years” , O’Regan said.

Intel stock ranks sixth out of 33 stocks in IBD’s semiconductor manufacturing industry group, according to Checking ITN stocks.

Additionally, Intel receives significant funding from the US government through the CHIPS and Science Act. Government funding aims to bring cutting-edge semiconductor manufacturing back to the United States.

Follow Patrick Seitz on @IBD_PSeitz for more articles on consumer technology, software and semiconductor stocks.

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