Intel shares tumble after new CEO pledges to stick with chip manufacturing

Pat Gelsinger to provide more details after officially taking over as chief next month

Intel Corp shares tumbled after the incoming chief executive officer pledged to regain the company’s lead in chip manufacturing, countering growing calls from some investors to shed that part of its business.

“I am confident that the majority of our 2023 products will be manufactured internally,” Pat Gelsinger said on a conference call to discuss financial results.

“At the same time, given the breadth of our portfolio, it’s likely that we will expand our use of external foundries for certain technologies and products.”

He plans to provide more details after officially taking over the CEO role on February 15th. However, Mr Gelsinger was clear that Intel is sticking with its once-mighty manufacturing operation.

“We’re not just interested in closing gaps,” he told analysts on a conference call Thursday. “We’re interested in resuming that position as the unquestioned leader in process technology.”

Since 1989, Intel has invested $15 billion (€12.3 billion) in Ireland creating an advanced industrial campus in Europe. The company has 4,900 employees across Ireland.

Keeping production in-house may be bad for Intel because its manufacturing technology has fallen behind Taiwan Semiconductor Manufacturing Co, which makes chips for many of Intel’s rivals. If the US company can’t catch up, its products will become less competitive and it could lose sales and market share.

Intel shares fell 5.7 per cent in early morning trading in New York on Friday. They have declined about 6 per cent over the past 12 months compared with a 16 per cent increase in the SandP 500.

Manufacturing unit

Activist Dan Loeb has suggested the company consider spinning off its manufacturing business. Other investors have been waiting to see if Intel will outsource more production.

“Where investors are going to be disappointed is that some were expecting some sort of larger announcement of a strategic partnership with TSMC,” said Edward Jones and Co analyst Logan Purk.

TSMC recently announced capital spending of as much as $28 billion (€23 billion) for 2021 to maintain its lead. Purk said Intel would have to increase its own spending massively to try to catch the Asian company.

TSMC dropped 3.6 per cent, the most since March 23rd. Shares of some Intel suppliers also dropped, with Screen Holdings down 3.7 per cent and Tokyo Electron declined 1.6 per cent.

Mr Gelsinger is taking the reins of a company in the midst of its worst crisis in at least a decade. It has been the largest chipmaker for most of the past 30 years, dominating the $400 billion (€328 billion) industry by making the best designs in its own cutting-edge factories.

Most other US chip companies shut or sold plants and tapped other firms to make the components. Intel held out, arguing that doing both improved each side of its operations and created better semiconductors.

That strategy has crumbled in recent years as Intel struggled to introduce new production techniques on time. It is now lagging behind TSMC and Samsung Electronics, which make chips for Intel competitors, such as Advanced Micro Devices, and big Intel customers including and Apple.

AMD shares rallied in extended trading while Mr Gelsinger discussed his goal of improving Intel’s in-house manufacturing.

Website hacked

Intel’s quarterly results, released before the market closed on Thursday, initially sent the shares higher. A hacker accessed sensitive information from Intel’s website, prompting the company to report the numbers earlier than planned.

Revenue in the period ending in March will be about $17.5 billion (€14.3 billion), the California-based company said. This excludes the memory chip division Intel is selling. Analysts were looking for $16.2 billion (€13.3 billion) on average, according to data compiled by Bloomberg.

Intel expects strong demand for laptops through the first half of the year, chief financial officer George Davis said in an interview. Earnings in the second part of the year will partly depend on whether corporations increase spending on new hardware, he added.

“The question is will we see support from enterprise,” he said. “They’ve been very quiet.”

Intel’s personal computer chip division had revenue of $10.9 billion (€8.95 billion) in the fourth quarter. Analysts expected $9.72 billion (€7.98 billion). Its higher-margin data centre unit generated sales of $6.1 billion (€5 billion). Wall Street was looking for $5.37 billion (€4.41 billion).

– Bloomberg