Intel said Tuesday that its manufacturing business lost nearly $7 billion last year, the first time the company has detailed the financial performance of its factory operations as their own business unit.
Intel is banking on a big rebound as it expands into contract manufacturing, making computer chips for other tech companies, a segment it calls Intel Foundry. Intel began reporting financial results for its factories Tuesday as a step toward helping the company – and investors – evaluate how its factory network is performing.
“We’re putting the economics back into Moore’s Law,” Pat Gelsinger, Intel’s CEO, said Tuesday in a presentation to investment analysists. Moore’s Law is the maxim predicting exponential growth in computing power even as the cost of each transistor falls.
But Gelsinger warned that it will take about three years until Intel’s new economics begin adding up and the manufacturing business breaks even. That long horizon helped send Intel shares down about 4% in after-hours trading Tuesday afternoon.
Intel has committed roughly $100 billion over the next several years to factory upgrades in Oregon and to brand-new factories in Arizona, Ohio, Germany and Israel. Last month, the Biden administration awarded Intel $8.5 billion in subsidies and an $11 billion loan to help offset the tremendous costs associated with Intel’s U.S. expansion.
Intel is trying to spend its way out of a technology deficit, playing catchup to industry leader Taiwan Semiconductor Manufacturing Co.
Intel is making way for a new manufacturing tool, called extreme ultraviolet lithography, which can print much smaller patterns on silicon wafers. That will enable higher performance chips.
But these EUV tools, from Dutch manufacturer ASML, cost nearly $400 million apiece for the most advanced models. So Intel needs to keep its factories humming to justify the enormous cost.
That’s a big part of why Intel has begun opening its factories to make chips for other companies, which the semiconductor industry calls foundry work. Intel wants to get more use out of the EUV tools by using them both for its own products and others’. It hopes to be the world’s second-largest foundry, trailing only TSMC, by 2030.
Intel is essentially starting from scratch. It launched its foundry business three years ago but didn’t announce a major client until this past February, when Microsoft said it will use Intel factories to make some chips.
The new accounting Intel laid out Tuesday divides the company into two segments – Intel Products and Intel Foundry.
It assigns costs to the company’s own engineers when they use Intel factories to test and manufacture chips for PCs and data centers. Intel says that will impose financial discipline on its operations by making those that design the company’s chips be more judicious about what they ask their counterparts in the factory to do.
“It brings proper discipline to the Intel Products group,” Gelsinger said.
Eventually, Gelsinger said up to a third of the chips produced in Intel’s factories will be for other companies. And he said the company’s new operating structure, and more competitive chips enabled by EUV, position Intel to begin cashing in on its huge investment over the next seven years.
“We expect significant financial upside as we progress toward those targets,” Gelsinger said Tuesday. Intel said 2024 will be the worst year, financially, for the foundry business but suggested 2025 will be only modestly better.
Until recently, Intel’s business was built on tightly integrating the engineering and manufacturing of its chips. The company maintained that was the most cost-effective way to operate and enabled it to move faster than counterparts who outsourced their production.
Now, Intel says the huge cost of EUV makes that old strategy untenable. It needs more business than its own products can provide to offset rising factory costs.
Intel is tacitly acknowledging, too, that TSMC has developed a better model by specializing in advanced chips for the world’s biggest technology companies -- among them Nvidia and Apple.
So Intel’s new financial structure reflects a break from its past and a public commitment to the long rebuilding process still ahead.
“We will not be encumbered by history,” Gelsinger said Tuesday. “We’re going to go out and do something wonderful.”
-- Mike Rogoway covers Oregon technology and the state economy. Reach him at mrogoway@oregonian.com or 503-294-7699.
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