Intel avoids the embrace of outsourcing, investigates the hack of the results

(Reuters) – Intel Corp’s incoming CEO said Thursday that most of the company’s products for 2023 will be made in Intel factories, but he outlined a two-track future where he will lean more on external factories.

The lack of a strong embrace of outsourcing from new CEO Pat Gelsinger dropped shares by 4.7% after closing time. Stocks were up 6.5% during regular trading, when results were released before the close. The company said it was investigating “unauthorized” access to some of the findings, with the Financial Times quoting its chief financial officer as saying the microchip maker had been hacked.

Intel also expects Q1 revenues and profits to exceed Wall Street expectations and continue to benefit from them from pandemic demand for laptops and PCs that fueled the shift to work and play from home.

Gelsinger said he was “confident that most of our products for 2023 will be manufactured in-house”, although he also said the use of external chip factories is likely to increase “for certain technologies and products.”

Intel has been examining since last July whether to abandon its 10-year chip design and manufacturing strategy by turning to “foundry” manufacturers for help from its central processing units, or CPUS. These partners could be Taiwan Semiconductor Manufacturing Co and Samsung Electronics. Intel’s manufacturing technology, called the 7-nanometer process, is scheduled for 2023.

“We didn’t get our answer on which foundries and when,” said Patrick Moorhead of Moor Insights & Strategy. “They pushed the can down the street.”

Summit Insights Group analyst Kinngai Chan said Intel is unable to outsource its flagship chips.

“The speed of Intel’s 14-nanometer chip transistors has always been faster than any foundry can deliver even at 7 nanometers,” Chan said. “We believe its use of external foundries will increase over time, just not for its large CPUs.”

Maintaining domestic production means more investment. Bernstein analyst Stacy Rasgon questioned whether Gelsinger, currently CEO of VMware Inc who previously spent 30 years at Intel and announced his intention to return only last week, had enough time to investigate the matter. .

“It was pretty obvious they were trying to borrow its credibility” when Gelsinger approved Intel’s late 7-naonmeter technology, Rasgon said.

Intel’s decision coincides with the fact that US lawmakers have passed bipartisan legislation to finance chip manufacturing in the US. But the new law has yet to specify funding levels or recipients, and Forrester Research analyst Glenn O’Donnell said Intel might seize the opportunity to solicit US government support for domestic manufacturing.

Powered by a new high-end PC processor, Intel has regained some momentum in the PC market, with PC chip volumes growing 33%, faster than the 26% increase for the overall PC market, according to the data from IDC.

Sales of the data center group, which have fueled Intel’s growth in recent years, were $ 6.1 billion compared to analysts’ estimates of $ 5.48 billion, according to data from FactSet.

But sales to cloud computing customers, some of the fastest growing largest purchasers of data center chips, fell 15 percent in the fourth quarter. Data center chip operating margins were 34% for the quarter, down from 48% one year earlier.

“We believe operating (data center) margins will improve as we approach the second half of the year, when we expect a rebound in cloud chip sales,” said George Davis, Intel’s chief financial officer.

The company also increased the dividend by 5%.

The chip maker said it expects fiscal first quarter adjusted sales of $ 17.5 billion and adjusted earnings per share of $ 1.10, both ahead of analyst consensus, according to IBES data. from Refinitiv.

Fourth quarter revenue of $ 20 billion and adjusted earnings per share of $ 1.52 also surpassed Wall Street targets.

Reportage by Stephen Nellis in San Francisco, Ayanti Bera in Bengaluru and Peter Henderson in Oakland; Editing by Sriraj Kalluvila, Diane Craft and Grant McCool