Intel Shares Drop 4.17% Amid Foundry Business Shift

Intel Corporation's shares fell by 4.17% to $21.90 on Tuesday, following reports that the semiconductor giant is considering a significant strategic shift in its foundry business. The company's new CEO, Lip-Bu Tan, is reportedly evaluating whether to stop marketing the company’s advanced 18A manufacturing process to external foundry customers and instead focus on its next-generation 14A technology. This potential pivot comes as Intel struggles to compete with major chip production contracts, with industry heavyweights having already committed to other manufacturers’ processes.

The reported strategic change represents a dramatic departure from Intel’s foundry ambitions under CEO Lip-Bu Tan, who has expressed concerns that the 18A process is becoming less appealing to potential clients. Sources suggest that Tan has asked the company to prepare proposals for the board that would include halting efforts to market 18A to new foundry customers. If Intel proceeds with discontinuing external sales of its 18A and 18A-P processes, the company could face write-offs worth billions of dollars, as these manufacturing processes have cost Intel enormous sums to develop.

Intel reportedly believes it has a better chance of attracting major customers with its 14A process, which may offer advantages due to Intel’s early adoption of high-NA EUV processing technology. The 14A process is expected to deliver 15-20% performance gains and 25-35% lower power consumption compared to 18A, with risk production slated to begin in 2027. However, the company would still fulfill existing 18A commitments to major clients, though these represent relatively small volumes.

Intel’s stock decline reflects the company’s broader challenges in the semiconductor market. The stock has fallen 29.15% over the past year, while the broader market gained 12.77%. Even more striking, Intel’s five-year return shows a devastating 58.5% decline compared to the broader market’s 98.47% gain during the same period. The company’s financial metrics paint a concerning picture, with a negative profit margin of 36.19%, negative earnings per share of $4.48, and no meaningful P/E ratio due to losses. Intel’s levered free cash flow stands at negative $7 billion, highlighting the significant cash burn from its manufacturing investments.

Despite these challenges, the stock has shown some resilience year-to-date with a 9.10% gain, outperforming the broader market’s 5.62% return, though this appears insufficient to offset longer-term concerns about Intel’s competitive position in the rapidly evolving semiconductor landscape. The strategic evaluation of Intel's cutting-edge 18A chip-making technology is underway, with the company's shares experiencing a 0.8% dip in premarket trading. This potential shift could result in a significant write-off for the "18A" process, which analysts estimate could cost hundreds of millions of dollars. Under the proposed change, Intel Foundry would accelerate the development of its 14A node, aiming to enhance its competitiveness in the semiconductor market.

The decision to potentially end the marketing of the 18A chipmaking technology to new clients is part of a broader effort to attract larger customers. By focusing on the 14A node, Intel aims to better rival its competitors and secure more substantial contracts. This strategic shift is seen as a move to woo bigger clients and strengthen Intel's position in the highly competitive semiconductor industry. Should Intel decide to proceed with this strategic overhaul, it is likely to continue producing chips using the 18A process where plans have already been agreed upon. This approach allows the company to maintain its commitments while transitioning to the more competitive 14A technology. The potential shift underscores Intel's commitment to staying at the forefront of technological advancements and adapting to the evolving demands of the market.