Intel (INTC) stock took a hit on Wednesday as the chipmaker revealed disappointing financials for its foundry business, causing Wall Street analysts to question the unit’s future prospects.
In a late Tuesday presentation, Intel executives outlined a new structure for the company, dividing its operations into two main businesses: one focused on selling finished products and the other on providing chipmaking services. The Intel Foundry business, which supplies the Intel Products unit, has been struggling to turn a profit.
Despite setting a goal to become the No. 2 contract chipmaker globally, behind Taiwan Semiconductor Manufacturing (TSM), Intel Foundry reported a $7 billion operating loss for 2023, compared to a $5.2 billion loss in the previous year. Revenue for the unit also dropped significantly, from $27.5 billion in 2022 to $18.9 billion in 2023.
During the presentation, Intel CEO Pat Gelsinger acknowledged the challenges facing the foundry business, stating that operating losses are expected to peak in 2024 with a target to break even by 2027. Analysts expressed skepticism about Intel’s ability to meet its financial targets, with some questioning the company’s long-term strategy.
Despite the stock market’s negative reaction to the news, Intel’s decision to separate its two main businesses was seen as a move towards greater transparency for investors and potential customers. While some speculated about the possibility of Intel splitting into separate entities like Advanced Micro Devices (AMD) did with GlobalFoundries (GFS), analysts believe such a move is unlikely in the near future.
Intel stock dropped 8.2% to 40.33 on Wednesday, ranking sixth out of 33 stocks in IBD’s semiconductor manufacturing industry group. The company is also benefiting from significant government funding under the CHIPS and Science Act, aimed at revitalizing semiconductor manufacturing in the U.S. Investors will be closely watching Intel’s progress as it navigates the challenges in its foundry business and works towards achieving its long-term financial goals.