Intel’s Shares Fall 9% as Chipmaker Cuts Projects and Faces Customer Challenges in Foundry Business

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Lip-Bu Tan, Chief Executive Officer of Intel, appears at an event organized by the company. Andrej Sokolow | Picture Alliance | Getty Images

Intel’s stock dropped 9% after the chipmaker announced plans to reduce foundry costs in its latest effort to revive its struggling business. Concerns regarding the future of Intel’s chip manufacturing overshadowed a better-than-expected earnings report released late Thursday. Intel exceeded revenue expectations and provided a sales forecast for the third quarter that also surpassed estimates. The company reported adjusted earnings of 10 cents per share, exceeding the average analyst estimate of a penny, according to LSEG.

CEO Lip-Bu Tan, appointed in March, communicated in a memo to employees that the upcoming chip manufacturing process, named 14A, will be developed based on confirmed customer commitments, stating that there would be “no more blank checks.” In a filing with the SEC on Thursday, Intel indicated it may “pause or discontinue” its foundry business entirely if it fails to secure a customer for its next technology cycle.

“We have been unsuccessful to date in securing any significant external foundry customers for any of our nodes, and our prospects for securing a significant external foundry customer for Intel 14A are uncertain,” the company stated in the filing.

Intel’s stock decline on Friday erased much of its previous gains for the year. The shares have lost 60% of their value in 2024, marking their worst year on record. This slump reflects Intel’s challenges in gaining traction in the artificial intelligence market, which is currently dominated by Nvidia, along with skepticism regarding its foundry strategy.

The company announced it is halting chip facility projects in Germany and Poland and slowing production at its Ohio plant. Intel’s success in its foundry business depends on securing a major customer.

“Management seeks external customer commitments to pursue this technology node, but in the meantime, this creates additional uncertainty around product roadmaps and makes customer adoption less likely,” analysts at Barclays, who have a hold rating on the stock, noted in a report to clients.

Tan, who succeeded Pat Gelsinger as CEO, acknowledged in the memo that his initial months at the helm have “not been easy.” Intel has moved forward with its layoff plans, which will reduce its workforce by 15%, leaving approximately 75,000 employees by year-end.

“Over the past several years, the company invested too much, too soon – without adequate demand,” Tan stated. “As a result, our factory footprint became needlessly fragmented and underutilized,” he added.

Intel’s net loss widened to $2.9 billion, or 67 cents per share, from $1.61 billion, or 38 cents per share in the same period last year. The company recorded an $800 million impairment charge, “related to excess tools with no identified re-use.”

Analysts at JPMorgan Chase labeled Intel’s foundry decision as a “positive step,” although ongoing market share losses continue to raise concerns.

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