Intel CEO Pat Gelsinger speaks during Mobileye Global Inc.’s IPO at the Nasdaq MarketSite in New York on October 26, 2022. Mobileye Global Inc., the standalone technology company owned by Intel Corp. , priced one of the year’s largest U.S. initial public offerings above its marketed range to raise $861 million.
Michael Nagle | Bloomberg | Getty Images
Intel The stock fell 6% on Wednesday after the company informed investors of its turnaround plan to become a chipmaker in competition with Taiwan Semiconductor Manufacturing Company.
Wednesday’s update featured Intel Chief Financial Officer David Zinsner explaining how the company will soon change the way it reports its financial results to give its foundry business, known as IFS , its own profit and loss account, which would reveal the company’s manufacturing margins.
Intel’s new reporting structure could also help control costs for the chipmaker, which is seeking to cut up to $10 billion in costs over the next three years.
The update comes as investors continue to assess Intel’s turnaround plan under CEO Pat Gelsinger, which hinges on TSMC’s manufacturing technology catching up by 2026, a plan he calls “five knots in four years”. Intel plans to use its own chips to fix manufacturing issues before opening factories to third-party companies.
If Intel catches up with TSMC, it may compete for contracts to build high-performance chips from companies such as Apple, NvidiaAnd Qualcomm, which do not handle their own manufacturing and currently often opt for TSMC or Samsung manufacturing. Intel said it plans to announce a key customer for its foundry business later this year.
“The manufacturing group will now face the same market dynamics as its foundry counterparts,” Zinsner told analysts. “They will have to compete for volume through performance and price, as internal customers will have the opportunity to leverage third-party foundries and attract the external foundry volume they must do the same.”
Wednesday’s update focused on how Intel would use its manufacturing capabilities for its own chips. He said further updates on the foundry business and third-party customers would come later this year. It said its own chip needs will bring in $20 billion in unit revenue next year.
Analysts on the call worried about Intel’s gross margins and asked how this plan would increase them. In April, Intel said its first-quarter gross margin was 38.4%, down 51.3% year-on-year. Intel management said Wednesday it was targeting 60% margins.
“We think we have a good path to 60 (percent),” Zinsner said.
Separately, Intel said on Wednesday that it planned to sell 20% of an Austrian subsidiary, IMS Nanofabrication, to private equity firm Bain Capital in a deal valuing the unit at $4.3 billion.
“This will prove to be one of the best acquisitions we have ever made, given the level of valuation and the investments made,” Zinsner said Wednesday.
Other chip stocks also fell on Wednesday amid a bearish day for tech stocks. AMD, Intel’s main rival, fell almost 6%, while Qualcomm fell more than 3%. Nvidia, which has been boosted by the recent wave of AI, fell less than 2%.