Intel stock drops 6% as company updates chip manufacturing plans
- Intel stock dropped 6% Wednesday after the company gave investors an update on the company's turnaround plan to become a foundry competing with Taiwan Semiconductor Manufacturing Company.
- Intel's new reporting structure could help control costs at the chipmaker, which is seeking to trim as much as $10 billion from its costs over the next three years.
- Other chip stocks also fell Wednesday amid a down day for tech stocks.
Intel stock dropped 6% Wednesday after the company gave investors an update on the company's turnaround plan to become a chip manufacturing company competing with Taiwan Semiconductor Manufacturing Company.
Wednesday's update featured Intel's Chief Financial Officer David Zinsner explaining how the company would soon change the way it reports its financial results to give its foundry business, known as IFS, its own profit-and-loss statement, which would reveal the company's manufacturing margins.
Intel's new reporting structure could also help control costs at the chipmaker, which is seeking to trim as much as $10 billion from its costs over the next three years.
The update comes as investors continue to assess Intel's turnaround plan under CEO Pat Gelsinger, which depends on catching up with TSMC's manufacturing technology by 2026, a plan it calls "five nodes in four years." Intel plans to use its own chips to work out problems in its manufacturing before opening the factories to third-party companies.
If Intel catches up with TSMC, then it can compete for contracts to build high-performance chips from companies such as Apple, Nvidia and Qualcomm, which don't run their own manufacturing and currently often opt for TSMC or Samsung manufacturing. Intel said it expected to announce a key customer for its foundry business later this year.
"The manufacturing group will now face the same market dynamics as their foundry counterparts," Zinsner told analysts. "They'll need to compete for volume through performance and price as internal customers will have the option to leverage third party foundries and to attract external foundry volume, they must do the same."
Wednesday's update was focused on how Intel would use its manufacturing capabilities for its own chips. It said more updates on the foundry business and third-party customers would come later this year. Intel also said its own chip needs would contribute $20 billion in revenue to the unit 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 gross margin for the first quarter was 38.4%, down 51.3% in a year. Intel management said Wednesday it was shooting for 60% margins.
"We think we have a good path to 60 [percent]," Zinsner said.
Separately, Intel said Wednesday that it planned to sell 20% of an Austrian subsidiary, IMS Nanofabrication, to private equity firm Bain Capital in a deal that valued the unit at $4.3 billion.
"This will turn out to be one of the best acquisitions we've ever made, given that level of valuation and investment made," Zinsner said Wednesday.
Other chip stocks also fell Wednesday amid a down day for tech stocks. AMD, Intel's chief rival, fell nearly 6%, while Qualcomm fell more than 3%. Nvidia, which has been boosted by the recent artificial intelligence wave, fell less than 2%.