Thursday, 4 April 2024
by BD Banks
Shares of Intel (NASDAQ: INTC) were moving lower today after the chipmaker revealed in a filing that it’s losing billions of dollars in its foundry business.
Intel had not previously disclosed those losses in such detail, and the update showed significant challenges in a business that many believe could be a growth opportunity for the company.
As of 11:12 a.m. ET, the stock was down 6.7% on the news.
Image source: Getty Images.
In an SEC filing last night, Intel reported a loss in its foundry division of $7 billion and revealed that it had lost $5 billion in each of the previous two years.
The update shows that the foundry division, which manufactures products for both Intel and third-party customers, is a significant drag on the company’s overall performance. In fact, Intel reported just $93 million in generally accepted accounting principles (GAAP) operating income last year, in part due to weakness in the broader semiconductor industry.
According to some, Intel’s foundry business makes up an increasingly large part of the bull case in the stock. The company was awarded $8.5 billion from the CHIPS Act in order to open new semiconductor manufacturing plants in the U.S., but the wide losses it’s experiencing from the foundry business show that an expansion of its foundry services might not be good for the bottom line.
Intel has been significantly outperformed over the last decade by fabless competitors like Advanced Micro Devices, Broadcom, and Nvidia, and its own fabs seem like a weak point for the company.
In an investor presentation, CEO Pat Gelsinger said that operating losses for the foundry business will peak in 2024, and he expects it to break even on an operating basis by around 2027.
However, the company has a deep hole to climb out of, and it’s understandable why the stock is down on the news. Investors are likely skeptical that Intel can hit its goal of reaching breakeven by 2027 as well.
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Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.