Intel stock fell 6% as the company updated its chipmaking plans

Intel CEO Pat Gelsinger speaks during the initial public offering of Mobileye Global Inc. On the Nasdaq Market website in New York, October 26, 2022.

Michael Nagel | bloomberg | Getty Images

Intel The stock fell 6% on Wednesday after the company gave investors an update on the company’s transformation plan to become a chipmaker to compete with Taiwan Semiconductor Manufacturing Company.

Wednesday’s update featured Intel Chief Financial Officer David Zinsner explaining how the company will soon change the way it reports its financial results to give its foundry business, known as IFS, its own profit and loss statement, which will reveal the company’s manufacturing margins.

Intel’s new reporting structure could also help control costs at the chipmaker, which is seeking to cut up to $10 billion in costs over the next three years.

The update comes as investors continue to evaluate Intel’s turnaround plan under CEO Pat Gelsinger, which is based on catching up to TSMC’s manufacturing technology by 2026, a plan it calls “five points in four years.” Intel plans to use its own chips to solve problems in manufacturing before opening factories to third-party companies.

If Intel can catch up to TSMC, it can compete for contracts to build high-performance chips from companies like appleAnd nvidia And Qualcomm, which does not operate its own manufacturing operations and currently often chooses to manufacture TSMC or Samsung. Intel said it expects to announce a major plumbing business customer later this year.

“The manufacturing group will now face the same market dynamics as their foundry counterparts,” Zinsner told analysts. “They will need to compete for volume through performance and price. Since internal customers will have the option to tap into third-party foundries and attract external foundry volume, they must do the same.”

Wednesday’s update focused on how Intel uses its manufacturing capabilities for its own chips. She said more updates on plumbing and third-party customers are coming later this year. Intel also said its chip needs will contribute $20 billion in revenue per unit next year.

Analysts on the call expressed concern about Intel’s gross margins and asked how this plan would increase them. In April, Intel said its first-quarter gross margin was 38.4%, down 51.3% in a year. Intel management said Wednesday that it is seeking profit margins of 60%.

“We think we have a good path to 60 [percent]Zinner said.

Separately, Intel said on Wednesday that it plans 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 become one of the best acquisitions we’ve ever made, given this level of valuation and investment,” Zinsner said Wednesday.

Other chip stocks also fell on Wednesday amid a bearish day for technology stocks. AMD, Intel’s main competitor, fell nearly 6%, while Qualcomm stock fell more than 3%. Nvidia, boosted by the latest wave of artificial intelligence, fell less than 2%.

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