Intel’s turnaround plan won’t bear fruit anytime soon

The legacy processor giant yesterday unveiled a new financial reporting structure that accounts for the effective separation of its chip development (Products) and manufacturing (Foundry) businesses, which it announced in February. And in doing so, it filed a retrospective revision to its 10-K for the last quarter of 2023, revealing growing losses in its Foundry unit—nearly $7 billion in 2023, up from just over $5 billion in each of the preceding two years.

The revelation knocked Intel’s share price by over 7%, wiping more than $13 billion off the company’s value, and CEO Pat Gelsinger is desperate to reassure investors that Intel Foundry will be profitable. But not just yet. Indeed, this year will probably pan out even worse, he acknowledged yesterday, before an improvement leading to break-even in 2027.

There are clear reasons for this slow progress.

Intel’s only really big Foundry deal that’s been announced thus far is a recently won contract (reportedly worth up to $15 billion) to make Microsoft’s custom chips, which it will start doing using its upcoming 18A manufacturing process, due to roll out by the end of this year. But Intel gave itself a disadvantage by last year deciding to forego the use of ASML’s bleeding-edge extreme ultraviolet (EUV) chipmaking machines.

Gelsinger has since reversed that decision but, for now, Intel is forced to outsource a sizeable chunk of its production to Taiwan’s TSMC, its biggest rival in the foundry game. “In the post EUV era, we see that we’re very competitive now on price, performance [and] back to leadership,” he told investors yesterday, as quoted by Reuters. “In the pre-EUV era we carried a lot of costs and [were] uncompetitive.” Unfortunately, even if Intel Foundry reaches the 40% gross margin it’s forecasting for 2030, that’s still behind TSMC’s margin, which was 53% in Q4.

Speaking of TSMC, the market leader just had to pause production due to Taiwan’s biggest earthquake in a quarter century. It says the stoppages were procedural, and workers have already returned to some factory lines, but analysts have pointed out that any disruption to TSMC’s operations could have spoiled entire batches of chips. A lot of companies will be nervously keeping their eye on the situation.

More news below.

David Meyer

Correction, April 3, 2024: This article was updated to correct information about the chronology of Intel’s rollout of EUV technology and to clarify the reported value of Intel’s Microsoft deal.

Want to send thoughts or suggestions to Data Sheet? Drop a line here.

NEWSWORTHY

Net neutrality looms. The U.S. will soon get its net neutrality rule back, with the Federal Communications Commission setting April 25 as the date for what everyone expects to be a vote of approval on the matter, Reuters reports. The rule bans internet service providers from prioritizing the traffic of certain online service providers over that of others. The Trump-era FCC ditched the original net neutrality rule, which had been introduced by the agency in the Obama era. 

Truth Social funding revelation. Trump Media, the parent company of former President Donald Trump’s Truth Social platform, only made it through to its recent IPO thanks to loans in 2022 that partly came from a Russian-American businessman named Anton Postolnikov, the Guardian reports. Postolnikov is reportedly the nephew of Vladimir Putin ally Aleksander Smirnov (not to be confused with the former FBI informant of the same name, who has been charged with lying about the Biden family). Postolnikov is also under investigation in the U.S. in connection with alleged money laundering and insider trading in the lead-up to the SPAC deal through which Trump Media went public.

Yahoo buys Artifact. Instagram cofounders Kevin Systrom and Mike Krieger released the Artifact AI-powered news app at the start of last year, forecasted its imminent demise at the start of this year, and now they’ve sold the tech. Yahoo is the buyer, and it doesn’t get Systrom and Krieger as part of the deal, The Verge reports—though they will hang around as special advisors.

ON OUR FEED

“Nelson Peltz should definitely be on the Disney board!”

—Elon Musk throws his weight behind activist investor Peltz in his proxy contest with Bob Iger’s Disney, which will be settled today at Disney’s annual meeting. Musk has been furious with Disney and Iger since the entertainment giant yanked its advertising from X.

IN CASE YOU MISSED IT

Amazon is removing its cashierless Just Walk Out system from its Fresh grocery stores, by Bloomberg

Tesla reports its first year-over-year sales decline since the pandemic—and its shares are plummeting, by Marco Quiroz-Gutierrez

Slack’s chief product officer steps down, leaving none of the messaging service’s top early executives remaining, by Kylie Robison and Alexandra Sternlicht

Singers and stars try to pump the brakes on AI, as 200 artists including Billie Eilish and Jon Bon Jovi sign open letter denouncing unmitigated innovation, by Chloe Berger

The ‘Meta AI mafia’ brain drain continues with at least 3 more high-level departures, by Sharon Goldman

Is Microsoft’s $100 billion ‘Stargate’ OpenAI supercomputer AI’s ‘Star Wars’ moment?, by Jeremy Kahn

BEFORE YOU GO

Browser with downloadable AIs. The browser firm Opera, which tends to be more innovative than popular, will let users download large language models such as Meta’s Llama and Google’s Gemma, to be run locally on their computers, through the Opera One browser. TechCrunch reports that the feature will offer over 150 AI models, each of which will be bigger than 2GB. Opera VP Jan Standal: “It is expected that they may reduce in size as they get more and more specialized for the tasks at hand.” Meanwhile, the privacy-first mobile browser Brave also just integrated an AI assistant that taps into a choice of different LLMs.