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Intel foundry losses expected to peak this year after hitting $7 billion in 2023

Intel Corp.’s foundry business posted a $7 billion operating loss last year, and the chip company expects losses for that part of its business to peak this year.

That’s according to new disclosures made by Intel INTC, -1.30% as part of a resegmentation of its business. The company is breaking out the performance of its product and foundry businesses in a bid to help investors better understand the value of each one.

Intel’s foundry operating loss steepened in 2023 compared with the $5.2 billion loss that the company posted on the metric in 2022. The company attributed the difference in large part to lower internal revenue for the unit, which in turn weighed on profit potential.

The foundry business generated $18.9 billion in revenue in 2023, compared with $27.5 billion in 2022.

Shares of Intel fell 4% in after-hours trading Tuesday.

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“The background here is that the company has made the decision to run the foundry business somewhat separately from the chip business — with foundry interacting with the chip business as they would other customers,” Morgan Stanley’s Joseph Moore wrote in a note to clients Monday. “Other than the financial goals, the thought here is that this will make the foundry business better — by allowing them to service one of the largest customers in the world in a relationship approximating other foundry relationships.”

Intel said it expects foundry operating losses to peak this year, as it looks “to achieve break-even operating margins midway between now and the end of 2030, when it targets 40% non-GAAP gross margins and 30% non-GAAP operating margins,” according to a statement.

While many other chip makers don’t actually manufacture their own chips, Intel does, and the company is also pushing to be a foundry for other semiconductor players.

“Intel Foundry expects to drive further operating-margin expansion by manufacturing a larger percentage of Intel’s products, growing its high-margin advanced packaging business, continuing to expand its external foundry business, and further focusing on capital utilization, cost efficiency and growing scale,” the company said in its release.

Meanwhile, Intel’s recast financials showed $47.7 billion in product revenue last year, down from $57.0 billion in 2022. The company generated $11.3 billion in segment operating income for 2023, translating to a 23.8% margin, compared with $13.9 billion in 2022, when the company saw a 24.4% margin on the metric.

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Intel’s foundry business will start charging the products segment a market-based price for services.

“Continued operating-margin improvement is expected as the product segments build on their execution momentum with leadership products and improved pricing, drive cost optimizations in design and roadmap decisions, and realize improved costs in package, assembly and test,” the company said in the release.

Intel is aiming for a 60% adjusted progress margin and 40% adjusted operating margin in this part of the business by the end of 2030.

SOURCE

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