Intel Corp’s incoming chief executive officer Pat Gelsinger on Thursday 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,” Gelsinger said. “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 Feb. 15, but Gelsinger was clear that Intel is sticking with its once mighty manufacturing operation.
Photo: Reuters
“We’re not just interested in closing gaps,” he told analysts on a conference call. “We’re interested in resuming that position as the unquestioned leader in process technology.”
Keeping production in-house might be bad for Intel, because its manufacturing technology has fallen behind Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which makes chips for many of Intel’s rivals.
If the US company cannot catch up, its products would become less competitive, and it could lose sales and market share.
Activist investor Dan Loeb has suggested that the company consider spinning off its manufacturing business.
Other investors have been waiting to see if Intel will outsource more production.
Intel shares fell almost 5 percent in extended trading, giving away most of the gains made earlier on a strong earnings announcement.
“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 & Co analyst Logan Purk.
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 US$400 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 the past few years as Intel struggled to introduce new production techniques on time.
It is now lagging behind TSMC and Samsung Electronics Co, which make chips for Intel competitors, such as Advanced Micro Devices Inc, and big Intel customers, including Amazon.com Inc and Apple Inc.
Intel’s quarterly results, released before the market closed on Thursday, sent the shares higher in New York earlier in the day.
A hacker accessed sensitive information from Intel’s Web site, prompting the company to report the numbers earlier than planned.
Revenue in the period ending in March would be about US$17.5 billion, the Santa Clara, California-based company said.
That excludes the memorychip division that Intel is selling.
Analysts were looking for US$16.2 billion on average, according to data compiled by Bloomberg.
Intel sees strong demand for laptops through the first half of the year, Intel chief financial officer George Davis said in an interview.
Earnings in the second half would partly depend on whether corporations increase spending on new hardware, Davis said.
“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 US$10.9 billion last quarter.
Analysts expected US$9.72 billion.
Its higher-margin data center unit generated sales of US$6.1 billion.
Wall Street was looking for US$5.37 billion.
In Intel’s data center business, revenue from cloud service providers fell 15 percent from a year earlier. Enterprise and government sales slumped 25 percent.
Volumes and average selling prices declined.
Owners of large data centers are working their way through unused stockpiles of chips.
In its PC business, Intel reported a 30 percent surge in laptop chip sales, even as average selling prices declined 15 percent.
Fourth-quarter profit, excluding some items, was US$1.52 per share on US$20 billion of revenue, down 1 percent from a year earlier.
Analysts had estimated US$1.11 per share on revenue of US$17.5 billion.
Intel’s gross margin, the percentage of revenue remaining after deducting the cost of production, was 56.8 percent.
This is a key indicator of the strength of its manufacturing and product pricing.
Intel has historically delivered margins of about 60 percent.
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