Intel foundry unit loses $7 billion in 2023, company outsources 30% of its production to TSMC, others

About one-third of Intel’s products are now made by the company’s foundry partners, mainly TSMC. This has a negative effect on the company’s margins since Intel has to pay premiums to contract chip makers. Meanwhile, Intel re-released its financials for the last three years, which shows that its own foundry unit lost some $7 billion last year as it invested in new capacity and tools for next-generation process technologies. It’s noteworthy that the foundry unit did not operate as a separate entity during the entire 2023 time frame, meaning the re-factored numbers aren’t entirely indicative of the units’ performance, or the cost-saving measures that will take place as it now operates as its own independent unit. Once the new nodes come online, Intel hopes to reduce outsourcing to below 20%, its traditional percentage of outsourcing, which will significantly improve its margins.

“It is in the order of 30% of our wafers today that we bring in externally, will be in-sourcing some level, as I said, [when] a couple of fab modules we expect over this period of time [come online],” said Pat Gelsinger, chief executive of Intel at the company’s webinar dedicated to new reporting structure.

Starting from Q1 2025, Intel will adopt a new operating model that establishes a foundry relationship between Intel Foundry, the company’s manufacturing organization, and Intel Products, which includes the company’s business units. As a result, results for the Foundry and Products units will be reported separately. The company also recast results for the last few years in accordance with the new reporting structure.

The results for 2023 reported in the new way reveal that Intel’s product groups are all profitable, driven by the client computing group, which alone earned $9.5 billion in profit in 2023. Meanwhile, the gross margin and operating margin of Intel’s Products are below historical levels, so the company wants non-GAAP gross margin to increase to 60% and non-GAAP operating margins to increase to 40% in 2030.

By contrast, Intel Foundry lost $7 billion last year as the unit invested heavily in new process technologies, new manufacturing capacity (i.e., new fabs), and new tools (e.g., ASML’s Twinscan EXE:5000 High-NA EUV lithography system). Intel’s target for its foundry unit is 40% non-GAAP gross margin and 30% non-GAAP operating margin in 2030. 

(Image credit: Intel)

Intel is building multiple fabs in the U.S. and is gearing up to kick off construction of its semiconductor manufacturing facility near Magdeburg in Germany. In the U.S., the company is expected to start ramping up its new fabs in Arizona in 2024 – 2025, whereas the fabs in Ohio are expected to start operations in 2026. Once Intel’s new fabs are operations and yields hit decent levels, the company’s Foundry and Products margins will improve as the company brings more production back home.

The company hopes that as its own process technologies get more competitive, it will be able to increase the proportion of its own production and decrease the proportion of outsourcing in its product mix, which will improve its profitability as a company.  

“We expect [outsourcing to drop] down below 20% over the period [till 2030]”, Gelsinger said. “[…] External foundries [will continue to be] an important part of our business strategy, but we will be bringing more of those wafers home. That helps us in a number of dimensions, in terms of cost, obviously, the consolidation benefits that we get from that, it also will allow us to extend the life of some of the factory nodes as well.”

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