Intel is reorganizing its business to give investors more visibility into its foundry operations. However, analyst Dave Novosel warns that the new approach to reporting “will not be a panacea for its bloated cost structure.” Novosel, who takes a negative stance on Intel’s bonds, is concerned about the cost associated with making chips for other companies.
The expansion of Intel’s foundry operations requires massive capital expenditures, and with the company already burning through cash, Novosel predicts that Intel will continue to see cash burn in 2022.
Intel Suffers Worst Week in a Year
While Intel is looking to expand its business, the company’s stock suffered its worst week in a year. Meanwhile, AMD and Broadcom have both experienced six-session losing streaks.
Intel Faces Tough Challenges in Foundry Business
Intel’s foundry business faces huge cash burn due to hefty capital spending and additional debt of $15 billion in the past three quarters. An underperform rating on the chip giant’s bonds has reinforced this claim. The company is trying to trim costs by speeding up ramp rates and charging for samples, but cost savings opportunities’ full benefit would not occur until the end of 2025. Meanwhile, Intel is facing difficulties moving through five nodes in four years, which is an ambitious goal. Novosel points out some product rollout mishaps in recent years that make this challenge even more daunting. Despite Intel’s investor day last week, where it provided further information about the foundry business, the stock is only heading upwards by 0.9% in pre-market action.
Intel’s Foundry Push: Is It the Right Move?
Intel’s latest announcement on its foundry strategy has triggered mixed reactions from experts. While some believe this is the right move for the tech giant, others like Citi have labeled it as the “wrong move.”
Despite criticisms, Intel firmly believes that its multi-billion dollar investment in its foundry business will pay off. The company plans to leverage its expertise in semiconductor technology to now offer manufacturing capabilities to other tech companies.
Many industry analysts have pointed out the potential for Intel in the foundry market, where only a few players currently dominate. Additionally, there is a growing demand for customized chips for specific applications, which could be a lucrative opportunity for Intel.
However, not everyone is convinced. Some critics argue that Intel’s focus should remain on producing its own semiconductors and improving its market position in that regard. The company has struggled with delays in product release and competition from rival companies like AMD and NVIDIA.
Only time will tell whether Intel’s foundry push will be a profitable decision. Intel has a lot to prove in the coming years to demonstrate that this was indeed the right move.
