Intel drops 9% as chipmaker's foundry business axes projects, struggles to find customers

Intel's shares experienced a significant drop of 9% after the company announced it would be reducing costs within its foundry division as part of a broader effort to revitalize its struggling business. This decline overshadowed a surprisingly strong earnings report released late Thursday, where Intel surpassed revenue expectations and provided an optimistic sales forecast for the third quarter. The chipmaker reported adjusted earnings of 10 cents per share, exceeding the average analyst prediction of just one cent, as noted by LSEG. CEO Lip-Bu Tan, who took the reins in March, communicated to employees that the upcoming chip manufacturing process, known as 14A, would be developed based on confirmed customer commitments, emphasizing that there would be 'no more blank checks.' In a filing with the SEC, Intel indicated that it might consider pausing or even completely discontinuing its foundry operations if it fails to secure customers for its next technology cycle. The company confessed, '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 stock's decline on Friday erased much of Intel's gains accrued throughout the year, reflecting a staggering 60% loss in value for 2024, marking it as the company's worst year on record. This downturn highlights Intel's struggles to gain traction in the competitive artificial intelligence market, which is largely dominated by Nvidia, alongside growing skepticism about its foundry strategy. In a strategic shift, Intel has decided to halt chip facility projects in Germany and Poland while also reducing production at its Ohio plant, as the company relies heavily on acquiring significant customers for its foundry business to thrive. Analysts at Barclays, who maintain a hold rating on Intel's stock, noted that while management is seeking external customer commitments, the current uncertainty complicates product roadmaps and may hinder customer adoption. Tan acknowledged the difficulties faced during his initial months as CEO, revealing that the company has mostly completed its layoff plans, which will see a 15% reduction in workforce, bringing the total to 75,000 employees. 'In recent years, the company invested too much too quickly—without sufficient demand,' Tan remarked. He further explained that this led to an unnecessarily fragmented and underutilized factory footprint. The company's net loss expanded to $2.9 billion, or 67 cents per share, compared to a loss of $1.61 billion, or 38 cents per share, from the same period last year. Additionally, Intel recorded an $800 million impairment charge due to excess tools without identified re-use. Analysts from JPMorgan Chase described Intel's decision regarding its foundry as a 'positive step,' although concerns regarding ongoing market share losses persist.