The company provided investors with an update on its plan to transform into a chip manufacturing company that will compete with Taiwan Semiconductor Manufacturing Company. The new reporting structure of Intel could help control costs for the chipmaker, which aims to reduce its expenses by up to $10 billion over the next three years.
Wednesday’s update included an explanation from Intel’s Chief Financial Officer, David Zinsner, who clarified how the company will soon change the way it reports its financial results, allowing its manufacturing entity known as IFS to have its own income statement, revealing the company’s margins in the manufacturing sector.
The update comes at a time when investors continue to assess Intel’s recovery plan under the leadership of CEO Pat Gelsinger, which relies on catching up with TSMC’s manufacturing technology by 2026, a plan referred to as “five nodes in four years.”
Intel plans to utilize its own chips to address manufacturing challenges before opening up third-party factories.
If Intel catches up to TSMC, it will be able to compete for contracts to manufacture high-performance chips for companies like Apple, Nvidia, and Qualcomm, which themselves do not operate their own manufacturing and often choose TSMC or Samsung for production.
Intel stated that it expects to announce a key customer for its manufacturing entity later this year.
“The manufacturing business will now face the same market dynamics as its chip manufacturing peers,” said Zinsner to analysts. “They will have to compete for volume based on performance and price, as internal customers will have the option to utilize third-party manufacturing. If they want to attract volume from third-party manufacturing, they have to do the same.”
Wednesday’s update focused on how Intel will leverage its manufacturing capabilities for its own chips. It stated that further updates regarding the manufacturing entity and third-party customers will follow later this year.
Intel also stated that its own chip requirements will contribute $20 billion in revenue to this unit next year.
During the conference call, analysts expressed concerns about Intel’s gross margins and inquired about how this plan will contribute to their improvement.
In April, Intel announced that gross margins for the first quarter stood at 38.4%, a year-on-year decline of 5.3%.
Intel’s management stated on Wednesday that their goal is to achieve a 60% margin.
Separately on Wednesday, Intel announced a plan to sell a 20% stake in its Austrian subsidiary IMS Nanofabrication to private investment firm Bain Capital in a transaction valuing the unit at $4.3 billion.
“It will prove to be one of the best divestitures we’ve ever done, given this valuation and the investment we made,” Zinsner stated on Wednesday.
On Wednesday, chip stocks also declined due to the drop in technology shares. AMD, Intel’s main rival, fell nearly 6%, while Qualcomm dropped over 3%. Nvidia, which had been benefiting from the recent wave of artificial intelligence, declined by less than 2%.
Source: CNBC.com