Intel's Steep Foundry Losses Aren't Surprising. The Reasons Why Its Stock is Still Falling.

Intel Corporation has opted to segregate its product financials from its manufacturing financials, aiming to provide investors with a clearer understanding of how its product business fares compared to other semiconductor firms that do not produce their own chips.

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However, the restructured financials unveiled on Tuesday afternoon have unveiled the significant losses incurred by Intel's manufacturing division, prompting some analysts to question the company's ability to meet its targets for substantial improvement.

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The market responded unfavorably to this revelation, with Intel's stock plunging 7% in morning trading on Wednesday, positioning it among the S&P 500's top daily decliners.

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Bernstein analyst Stacy Rasgon expressed little surprise at the dismal state of foundry economics, emphasizing that Intel's manufacturing arm suffered a staggering $7 billion loss in the previous year on a revenue of $18.9 billion.

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Furthermore, projections indicate that these losses are poised to escalate throughout 2024, which Intel anticipates as the pinnacle year of financial hemorrhaging. Rasgon remains skeptical about Intel's ambitious and aggressive targets for its foundry business, foreseeing numerous years of significant challenges ahead.

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Nonetheless, he acknowledges the potential for a turnaround in manufacturing economics in the near future, with 2024 representing the nadir before potential improvement over time. Rasgon maintains a market perform rating on the stock with a target price of $42.

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On a more optimistic note, Mizuho analyst Jordan Klein commends Intel's chief financial officer for his track record in enhancing efficiencies. However, Klein highlights investor skepticism regarding Intel's ability to achieve its foundry margin targets, particularly in terms of securing adequate volume from external customers. Moreover, doubts linger regarding Intel's capability to reclaim its leadership in crucial areas such as yield, power efficiency, and cost reduction.

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Despite Intel's bold assertions, many investors remain unconvinced of the feasibility of its proposed trajectory.

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JPMorgan analyst Harlan Sur observed that Intel has revised its long-term targets for gross margins and operating margins for the entire company to 60% and 40%, respectively.

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The revised timeline extends to the end of the decade, a departure from the previous projection, which aimed for attainment by around 2026. Sur attributes this adjustment to recent cyclical downturns, loss of data-center market share to AMD, and tepid reception of data-center accelerator products. Consequently, Sur maintains an underweight rating on the stock with a target price of $37.

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