Approximately a third of the products made by Intel are produced by their partners, TSMC. This impacts Intel’s profits negatively, as they have to spend more on getting chips made externally. Recently Intel adjusted their reports, for the three years and disclosed a $7 billion loss in their own chip-making unit from the previous year due to investments in new technology and tools.
More About Intel Foundry Loss
It’s important to note that the separate chip-making unit was not operational for all of 2023. The updated numbers might not completely show its performance or the cost-saving measures it’s now implementing as an entity. The company plans to bring down outsourcing to under 20% once its new technologies are up and running, which will greatly boost its profits.
Pat Gelsinger, Intel’s CEO, mentioned in a webinar that 30% of their wafer production done externally will shift to in-house production as they launch new fab modules. By Q1 2025, Intel will follow a reporting model that separates its Foundry and Products units for clarity. The revised results for 2023 show profits across all of Intel’s product divisions, with the client computing group leading with $9.5 billion in profit.
Intel’s Products division is currently experiencing operating margins compared to previous years. As a response, the company aims to achieve a GAAP gross margin of 60% and a non-GAAP operating margin of 40%, by the year 2030. On the other hand, Intel Foundry faced a $7 billion loss in the year due to significant investments in new process technologies expanding manufacturing capacity, and advanced tools.
The company aims for a 40% non-GAAP gross margin and a 30% non-GAAP operating margin for its foundry unit by 2030. The tech company is constructing multiple fabs in the U.S. and is set to commence construction of a semiconductor manufacturing facility near Magdeburg, Germany. Operations at the new fabs in Arizona are expected to begin between 2024 and 2025, while those in Ohio are slated for 2026.
Once these new fabs are operational and yield rates improve both the Foundry and Products units’ margins are expected to improve as more production is brought in-house. The tech giant anticipates that as its own process technologies become more competitive, it will be able to increase its internal production and decrease outsourcing, thereby enhancing overall profitability.
FAQs
How does Intel’s outsourcing impact its margins?
Outsourcing 30% of production can negatively affect Intel’s profit margins due to additional costs incurred.
What is Intel doing to improve its foundry operations?
Intel aims to enhance profitability by targeting specific margin goals and reducing outsourcing through investments in technology and capacity expansion.
