Brightening Prospects for Intel’s Foundry Drive Stock Gains

Intel is seeking Repentium, and with its stock up 228% this year, markets appear more than willing to grant absolution for the money-losing ways of its semiconductor manufacturing unit.

The California tech giant’s shares popped 3.5% on Wednesday despite the broader market’s allergic reaction to Federal Reserve officials raising the prospect of an interest rate hike. While the S&P 500 sank 1.2% and the Nasdaq Composite dropped 1.3%, Intel was floating on new promise for its foundry.

Three’s Company

There are only three major chipmakers capable of mass-producing the most advanced semiconductors: Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung and Santa Clara, Calif.-based Intel. TSMC is the undisputed leader among them, boasting a 70% share of the global foundry market and world-class customers such as AMD, Apple, Broadcom and Nvidia.

Intel, meanwhile, mostly manufactures chips for in-house use. But running a specialized factory to make semiconductors is expensive: Intel’s foundry unit, which posted an operating loss of $2.4 billion on $5.4 billion in sales during the first quarter, has been generously described as a “loss leader.” In the golden age of chips, that’s not optimal. Intel is working to change it, with both internal and external incentives.

South Korea’s Chosun reported in March that TSMC’s advanced manufacturing capacity is almost fully booked through 2028, with the trillions in expected capital spending on AI over the next few years leaving it unable to keep up with demand. That puts Samsung and Intel in a position to woo customers. Intel upped the ante Tuesday when it began “risk production” with its 18A-P manufacturing process, which the company said can make chips run 9% faster using the same amount of power as its standard 18A process. The timing comes as more and more signals suggest major semiconductor buyers are exploring diversifying their supply chains:

• Nikkei Asia reported Wednesday that several key buyers, including AMD, BYD, Google and Tesla, have reached out to Samsung about its chipmaking capacity.
• The news magazine said last month that Google and Taiwanese chip designer MediaTek are designing custom chips leveraging Intel’s Embedded Multi-die Interconnect Bridge technology, which could net the US chipmaker a key customer for advanced chip packaging services. 

DC Pitchman: The US government took a 10% stake in Intel last year, and the Trump administration has been arguably its best sales advocate. Nvidia invested $5 billion and pledged to co-develop AI infrastructure with Intel. Apple struck a preliminary deal to use Intel chips in some of its devices, The Wall Street Journal said last month. And Intel joined a planned foundry project with SpaceX and Tesla dubbed Terafab. All three, the Journal said, came after Commerce Secretary Howard Lutnick met with executives and urged them to work with Intel.

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