Intel (INTC, Financial) CEO Pat Gelsinger's ambitious "IDM 2.0" strategy, aimed at reclaiming technology leadership and shifting towards a foundry model, has led to significant financial challenges. Despite the hurdles, Gelsinger believes the long-term benefits will outweigh the current financial sacrifices.
Intel recently unveiled a new financial reporting structure, spotlighting the struggles of its nascent Intel Foundry segment. The 2023 fiscal year saw the Foundry's revenue plummet by 31% to $18.9 billion, with operating losses widening to $6.96 billion from $5.17 billion in 2022. This downturn was mainly due to a drop in product profit and lower internal revenue, despite earning $953 million from external customers.
The company is aggressively investing in new manufacturing facilities to bolster its foundry business. With capital investments in construction reaching $43.4 billion by the end of 2023, and nearly $100 billion planned for four U.S. sites, Intel is banking heavily on the future success of this venture. This includes an $8.5 billion boost from the U.S. CHIPS and Science Act.
Intel anticipates the Foundry's operating losses will peak in 2024, with profitability not expected until possibly 2027 or later. The goal is to achieve 40% non-GAAP gross margin and 30% non-GAAP operating margin by the end of 2030, driven by a shift to advanced extreme ultraviolet (EUV) nodes and more in-house production.
Despite the daunting financial outlook, Intel's Foundry business has garnered over $15 billion in lifetime deal value from external customers, a significant increase from the $10 billion reported in January. However, it still lags far behind Taiwan Semiconductor Manufacturing (TSM, Financial), which posted $69.4 billion in revenue for 2023.
The latest financial updates from Intel confirm the anticipated rough patch for its Foundry business, with losses surpassing expectations. This phase of transformation underscores the volatility Intel's financial performance will face in the coming years.
