Intel’s share price, under the NASDAQ listing INTC, took a substantial hit following a surprising disclosure in its latest filing. The chipmaker unveiled staggering losses amounting to billions within its foundry business, a development that caught many off guard with its magnitude and unveiled significant hurdles in a segment that was once seen as a beacon of growth for the company.
By mid-morning trading, the stock had plummeted by 6.7% in response to this revelation.
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The Harsh Reality of Intel’s Foundry Troubles
In a recent SEC filing, Intel dropped a bombshell, reporting a colossal $7 billion loss in its foundry division. The disclosure didn’t end there; the company also revealed identical $5 billion losses for each of the preceding two years.
These numbers paint a grim picture of the foundry division’s underperformance. Responsible for producing chips for both internal and external clients, this unit has emerged as a significant drag on Intel’s profitability. In the backdrop of broader semiconductor softness, Intel scraped by with a meager $93 million in operating income as per generally accepted accounting principles (GAAP) last year.
Intel’s plan to leverage its foundry business had been a key point in the stock’s bull thesis. However, the recent substantial losses underscore the caution around betting heavily on enlarging this segment, courtesy of the financial drain it exerts.
Embedded in a Bigger Predicament
Over the past decade, Intel has played second fiddle to fabless competitors like Advanced Micro Devices, Broadcom, and Nvidia. The company’s in-house fabrication facilities have emerged as a glaring weakness.
During an investor presentation, CEO Pat Gelsinger laid out an aspirational timeline: he anticipates that the foundry business’s operating losses will peak in 2024, with a projected break-even not expected before around 2027. However, the sheer magnitude of the current challenge has left investors understandably doubtful. The skepticism around Intel’s ability to meet its 2027 breakeven goal has cast a shadow on the stock’s prospects.
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Jeremy Bowman holds positions in Broadcom. The Motley Fool has stakes in and endorses Advanced Micro Devices and Nvidia. The Motley Fool advocates for Broadcom and Intel, and pushes options like 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 maintains a strict disclosure policy.
The views expressed above are the author’s own and do not necessarily align with those of Nasdaq, Inc.
