Intel Faces Major Setback as Broadcom Rejects Advanced Chip Manufacturing

Three sources reveal that Intel's contract manufacturing ambitions have faced a setback after failing Broadcom’s testing. This failure is a blow to Intel's efforts to return to profitability. Broadcom returned the silicon wafers processed by Intel’s advanced 18A manufacturing process, deeming it unfit for mass production. Broadcom’s spokesperson noted that the evaluation of Intel’s offerings is still ongoing. Intel's contract manufacturing business, initiated in 2021, is a core component of CEO Pat Gelsinger’s turnaround strategy. The company reported a second-quarter loss, with its market value shrinking by over a quarter. Contract manufacturing losses ballooned to $7 billion, up from $5.2 billion in the same period last year. Executives predict the business will break even by 2027.

Intel, once a Silicon Valley titan, now faces unprecedented challenges. Once synonymous with the PC era, Intel's stock has plummeted nearly 60% this year, making it the worst-performing stock in the Dow Jones Industrial Average and raising fears it might be ejected from the index.

Intel’s second quarter report showed revenue of $12.83 billion, down 1% year-over-year and below market expectations. Net income plummeted 85% to $83 million, a stark contrast to last year's $1.5 billion profit. Following the report, Intel's stock dropped 26%, erasing $32 billion in market value, the largest single-day drop in over four decades.

Intel CEO Pat Gelsinger attributed the poor performance to several factors: slower-than-expected revenue growth, high costs, low margins, and continuous investment in new chip ventures. Since 2019, quarterly sales and operating income have been on a downward trend, highlighted by significant declines in 2022.

In an attempt to manage the financial downturn, Intel announced a plan to lay off 15,000 employees, roughly 15% of its workforce, and has decided not to issue dividends for the fourth quarter of the 2024 fiscal year, breaking a 32-year streak of dividend payments.

Intel's difficulties extend beyond financial losses to quality issues with its processors. The 13th and 14th generation Raptor Lake desktop processors have been plagued with instability issues, including frequent blue screen errors, which have worsened the company’s public image.

Intel's struggles underline a broader narrative — a former industry behemoth now grappling with missed opportunities in mobile computing and AI. Despite powerful technological foundations, Intel's hesitance and sluggish response to these trends have resulted in a significant loss of market leadership.

Intel's turnaround strategy, IDM 2.0, which involves maintaining its X86 business while entering the contract manufacturing market, now appears more challenging than anticipated. Despite significant investments and restructuring, Intel has faced substantial operational difficulties and competition from established players like TSMC and Samsung.

Given that Intel’s market value has dropped from over $240 billion to around $90 billion since Gelsinger took over, the company faces a steep climb to regain its former stature, especially as competitors like AMD and Nvidia continue their ascension.

Intel’s next steps will be closely watched as the company navigates one of its most challenging periods.