Intel is struggling with its budget. The business has invested billions to match Taiwan Semiconductor Manufacturing's manufacturing prowess in the development of advanced chips. But, with revenue going down, boss Pat Gelsinger has much less leverage. Intel is merely unable to stay up.
Intel, which was formerly the unchallenged leader in the semiconductor business, is currently behind TSMC with regard to chip density, cost, and power efficiency. Competitors gained from the Taiwanese company's innovations and snatched up market share as they gave up on the vertically integrated design-and-manufacturing approach. As a result, Intel is losing money and has seen a 50% decline in stock price over the last five years.
Gelsinger came back to lead Intel out of its technological rut in 2021 after serving as chief architect of the company's seminal 80486 chip nearly forty years ago. Now that the task is almost complete, he declares that the upcoming chips will match anything produced by TSMC on important metrics. Perhaps, but that's just a part of the battle. Intel needs to demonstrate that it can effectively and in large quantities create advanced chips and convince outside clients to use its manufacturing.
This kind of scaling up production — and maintaining it — is quite expensive. In 2024, TSMC intends to invest thirty billion dollars. Most cutting-edge semiconductors receive about 80% of this. According to Intel, that should be sufficient for one new fabrication facility, which would cost $25 billion.
Not as much investment is required of the company. According to executives, up to 25% of the necessary spending can be covered by co-investors like Brookfield and public subsidies. If this is the case, Intel requires roughly $19 billion a year to continue adding one new facility each year.
It currently intends to spend around that much next year. The problem is that Gelsinger has also pledged that, over time, capital expenditures will account for around 25% of revenue. Should sales reach approximately $75 billion, there will be sufficient space. But according to LSEG, that's a third more than analysts predict Intel will produce in the upcoming year.
In the meantime, the cost of constructing plants is only rising. Compared to Intel, TSMC has larger operating margins, and for the last ten years, its capital expenditures have averaged 40% of revenue. To put it another way, the two businesses are headed in opposite directions. Improving chip designs and regaining manufacturing prowess are the two pillars on which Intel has staked its comeback. If the present promises materialize, it will have demonstrated its expertise in the former. Gelsinger will have to reconsider the latter, though, as the financial gap will only get bigger.