It was a breathtaking blow to Intel Corporation that landed this week. The company’s stock tanked nearly 9% following the company’s move to save money at its foundry business. Under CEO Lip-Bu Tan’s (he took over in March 2023, succeeding Pat Gelsinger) stewardship, the company is crumbling. It has consistently found it difficult to land significant outside external foundry customers. This repeated failure has led to a momentous 60% drop in Intel’s stock price over the course of year.
In that financial report, Intel declared adjusted earnings of just 10 cents per share. This remarkable figure blew analysts’ expectations out of the water, which were averaging just one cent. The company disclosed an $800 million impairment charge for excess tools with no identified re-use. This unexpected development highlights the unprecedented obstacles it must overcome in its manufacturing undertaking.
In his remarks, Lip-Bu Tan candidly recognized the challenges he faced in those first months as CEO. He went on to say, “In recent years, the company overbuilt ahead of demand.” This has caused him to take a more strategic approach in the future. In a memo to employees, Tan emphasized that there would be “no more blank checks,” indicating a shift in how the company will allocate resources.
Waning demand from the semiconductor industry’s downturn, combined with the pressures on Intel’s foundry business, prompted the company to scrap several chip facility projects in Germany and Poland. Along with this, the company announced it would be idling production at its plant in Ohio, as it looks to cut costs and increase efficiency. Tan acknowledged that the company’s factory footprint had grown “unnecessarily sprawling and inefficient,” requiring these reductions.
Industry-wide, Intel’s upcoming chip fabrication technology – labelled as 14A – is heavily dependent on clear customer commitments. The company’s endemic regional foundry competitors’ long-term ability to attract major external foundry customers is questionable. In a recent 8-K filing with the Securities and Exchange Commission (SEC), Intel conceded that they had not been successful in luring any substantial external foundry customers to their nodes. They indicated they’re not confident about getting a big customer on board for Intel 14A.
As Intel navigates these turbulent times, it faces the dual challenge of restoring investor confidence while addressing its operational inefficiencies. Though under the visionary leadership of Lip-Bu Tan, the company has begun to paint a different picture. They are taking a more fiscally disciplined investment strategy that aligns production with actual market demand.