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Intel’s contract chip-making business has been hit with significant losses, leading to a 5% drop in shares before the bell on Wednesday. The company’s new financial details reveal that its foundry unit reported operating losses of $7 billion in 2023 compared to $5.2 billion in 2022, indicating that it may take years to catch up with the profitability of Taiwan Semiconductor Manufacturing Co.

Intel has been investing heavily to regain its position as a leading producer of cutting-edge chips after losing ground to TSMC. The U.S. chipmaker’s capital investments under “construction in progress” amounted to $43.4 billion as of December 31, 2023, up from $36.7 billion the previous year. Additionally, Intel plans to spend $100 billion on plants in the U.S., with assistance from the U.S. Chips Act.

Despite Intel’s efforts, its CEO, Pat Gelsinger, projects that operating losses for the contract chip-making business will peak in 2024 before breaking even around 2027. This sector represents about 35% of Intel’s total net revenue in 2023. The company aims for the foundry business to achieve a gross margin of approximately 40% by 2030, still behind TSMC’s 53% margin reported in Q4 of 2023. Although Intel’s foundry unit had sales of $18.9 billion in 2023, TSMC’s revenue reached $19.52 billion in the final three months of the same year.

Gelsinger attributes past decisions like not using extreme ultraviolet (EUV) machines from ASML as having negatively impacted the foundry business. However, Intel has since transitioned to utilizing EUV tools and is making strides towards improving its competitiveness in this crucial sector.

The fierce competition in this industry highlights Intel’s struggle to stay ahead and maintain profitability while competing with TSMC and other leading manufacturers such as Samsung Semiconductor Inc.

In conclusion, Intel faces significant challenges ahead for its contract chip-making business after revealing significant losses at its foundry unit and projecting ongoing losses for several years before achieving profitability again.

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