Intel is becoming accidental ad for friendshoring
NEW YORK, Jan 27 (Reuters Breakingviews) - Intel’s (INTC.O) microchips may be tiny, but its troubles are impossible to miss. On Thursday, the U.S. chipmaker said revenue and profitability plummeted in the fourth quarter. Its plan to catch up to rival Taiwan Semiconductor Manufacturing (2330.TW) in technology and manufacturing prowess, always ambitious, now looks implausible. If the U.S. government is keen to nurture a domestic chip industry, Intel is becoming an accidental advertisement for friendshoring.
The company’s performance is dismal. Revenue of $14 billion for the last three months of 2022 was 32% below the same period last year. The firm lost $661 million, compared to earning $4.6 billion a year ago. Next quarter could be worse: Intel thinks its top line will be around $11 billion, with a gross margin – or what’s left after the cost of making its goods – of 40%, or about a third less than three years ago.
Sure, times are difficult for chipmakers. Shortages that followed the pandemic have turned into gluts. The work-from-home boom in PC sales has turned into a bust, with fourth-quarter shipments falling 28%, according to market researcher Gartner. And as the building of data centers has cooled, revenue at the Intel unit that makes chips for them declined 33%.
The bigger problem for Chief Executive Pat Gelsinger is that its chief rival TSMC is still making strides, and producing smaller chips, at just 3 nanometers. As a result, Intel’s own processors are losing market share, and it’s getting harder to get companies like Apple (AAPL.O) to farm out chipmaking to Intel’s factories. Declining cash flow makes it harder to invest, which helps explain why Intel is bringing in outside backers for its $30 billion plan to build two new plants in Arizona.
If Intel has an ace up its sleeve, it’s strategic value. Keen on securing chips for the American economy and military, the U.S. government has pledged roughly $50 billion in subsidies and $24 billion in tax credits for domestic chipmaking. But foreign producers are also eligible to apply. TSMC already plans to triple investment to $40 billion in its new Arizona plant. Taxpayer largesse could come to Intel’s aid – but if its problems escalate, so does the likelihood that those funds go elsewhere.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.)
CONTEXT NEWS
Intel said on Jan. 26 that fourth-quarter revenue fell 32% from the same period last year to $14 billion. The semiconductor maker lost $664 million, compared to earning $4.6 billion a year ago.
Intel estimated first-quarter revenue would be between $10.5 billion and $11.5 billion. Analysts were expecting $13.9 billion according to Refinitiv.
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