FILE PHOTO: A smartphone with a displayed Intel logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/ File Photo
(Reuters) -Intel shares sank 8% on Friday after the company warned of exiting chip manufacturing if it fails to secure a major customer, a potentially drastic move by the new CEO to cut spending and revive the struggling American icon.
Lip-Bu Tan said on Thursday he would further shrink Intel's workforce, halt work on two plants in Europe and slow another in Ohio, binning his ousted predecessor's strategy that relied on building costly facilities to restore its manufacturing edge.
The plan for such extreme measures follows a surprise second-quarter adjusted loss and a forecast for a bigger-than-expected loss in the third quarter.
The weakening financials pointed to more trouble for Intel after years of mismanagement eroded its PC and datacenter market share and left it with almost no presence in the AI market.
The disclosures "revive long-unanswered questions on the chances of success for its foundry business and...what the path forward is if Intel does not develop leading edge manufacturing capability," TD Cowen analyst Joshua Buchalter said.
"It's hard to understate the significance of this potential outcome in the context of the history of the semiconductor industry."
As part of its new strategy, Intel may reserve the advanced 18A manufacturing process for its products and proceed with its next-generation 14A only if it lands a major external customer commits, Tan told analysts on the post-earnings call.
The move could put $100 billion in assets at risk and deepen its dependence on rival TSMC, adding strain to margins already running at about half their historical highs.
"Intel Foundry is a big story and currently people are questioning how successful 18A is. A failure in 18A will be a broken story," said Hendi Susanto, portfolio manager at Gabelli Funds.
Intel was set to lose nearly $8 billion in market value, if current losses hold. Its current valuation of around $100 billion is less than half of Advanced Micro Devices' more than $260 billion.
The stock has lagged far behind rivals this year, rising 12.8% compared with AI darling Nvidia's 30% gain and AMD's 34%. Intel trades at a 12-month forward price-to-earnings ratio of 42.55 versus 33.90 for Nvidia and 32.12 for AMD.
Since taking the helm in March, Tan has divested businesses, laid off employees and redirected resources as part of his strategic reset to revive the embattled chipmaker.
"There are no more blank checks," he wrote in a memo to employees on Thursday.
(Reporting by Rashika Singh and Arsheeya Bajwa in Bengaluru, Samuel Indyk in London; Editing by Amanda Cooper, Vijay Kishore and Arun Koyyur)
