Lip-Bu Tan, Chief Executive Officer of Intel, appears at an event organized by the company.
Andrej Sokolow | Picture Alliance | Getty Images
Intel‘s stock dropped 9% after the chipmaker said it would slash foundry costs in its latest attempt to turnaround its struggling business.
Concerns about where that leaves Intel’s chip manufacturing business overshadowed a better-than-expected earnings report late Thursday. Intel beat on revenue and issued a sales forecast for the third quarter that also topped estimates. The company reported adjusted earnings of 10 cents per share, topping the average analyst estimate of a penny, according to LSEG.
CEO Lip-Bu Tan, who was appointed to the job in March, wrote in a memo to employees that the company’s forthcoming chip manufacturing process, called 14A, will be built out based on confirmed customer commitments and that there will be “no more blank checks.” In a filing with the SEC on Thursday, Intel said it may “pause or discontinue” its foundry business entirely if it could not secure a customer on its next technology cycle.
“We have been unsuccessful to date in securing any significant external foundry customers for any of our nodes and our prospects for securing a significant external foundry customer for Intel 14A are uncertain,” the company said in the filing.
Intel’s drop on Friday wiped out most of its rally for the year. The shares lost 60% of their value in 2024, their worst year on record. The slump reflected Intel’s inability to make much headway in the artificial intelligence market, which is dominated by Nvidia, as well as skepticism surrounding its foundry bet.
The company said it’s axing chip facility projects in Germany and Poland and slowing production at its Ohio plant. Intel depends on a large customer for its foundry business to succeed.
“Management wants external customer commitments to pursue the node, but in the meantime, this adds more uncertainty to product roadmaps and makes customer adoption more unlikely,” analysts at Barclays, who have the equivalent of a hold rating on the stock, wrote in a note to clients.
Tan, who replaced Pat Gelsinger as CEO, said in the memo that his first few months at the helm of the company have “not been easy.” Intel has gone through with most of its layoff plans, which will result in eliminating 15% of its workforce and finishing the year with 75,000 employees.
“Over the past several years, the company invested too much, too soon – without adequate demand,” Tan wrote. “In the process, our factory footprint became needlessly fragmented and underutilized,” he added
Intel’s net loss widened to $2.9 billion, or 67 cents per share, from $1.61 billion, or 38 cents in the year-ago period. The company recorded an $800 million impairment charge, “related to excess tools with no identified re-use.”
Analysts at JPMorgan Chase called Intel’s foundry decision a “positive step,” although ongoing market share losses remain a concern.
Read More: Intel drops 9% as chipmaker’s foundry business axes projects
