Intel will be forced to find a plan B

Outmatched. Intel’s in a money-spending fight, and it’s falling short. company has plowed billions into matching Taiwan Semiconductor Manufacturing prowess in producing cutting-edge chips. Yet with business slowing, boss Pat Gelsinger has far less firepower. Intel simply can’t keep up.

Once semiconductor industry’s undisputed leer, Intel now lags TSMC in terms of chip density, cost and power efficiency. As rivals abandoned vertically integrated design-and-manufacturing model, y benefitted from Taiwanese firm’s vances, gobbling up market share. result: Intel is burning cash, and its stock has fallen by half in five years.

Gelsinger was chief architect of Intel’s landmark 80486 chip nearly four deces ago, and returned to pull company out of its technological rut in 2021. He now says that mission is nearly accomplished, promising that chips coming next year will equal anything me by TSMC on key measures. Perhaps, but that’s only part of battle. Intel needs to prove it can produce cutting-edge chips in volume, efficiently, and that it can coax external customers to use its manufacturing.

Scaling up production like this - and upgring it year after year - is immensely costly. TSMC plans to invest $30 billion in 2024. About 80% of this goes to most vanced semiconductors. That’s about enough for a single new fabrication facility, which costs $25 billion, according to Intel.

U.S. company doesn’t have to invest quite as much. Executives say that public subsidies and help from co-investors, such as Brookfield, can fill in a quarter of required spending. If so, Intel needs about $19 billion annually just to maintain same one-new-plant-a-year pace.

Right now, it plans to spend roughly that amount next year. Problem is, Gelsinger has also promised that capital expenditures will equal about a quarter of revenue in long term. If sales come in at about $75 billion, that leaves enough heroom. But that’s fully a third more than analysts see Intel generating next year, according to LSEG.

Meanwhile, cost of building plants is only going up. TSMC has fatter operating margins than Intel, and its capital expenditure has averaged 40% of revenue over past dece. In or words, two companies are going in opposite directions. Intel has staked its turnaround on two revivals: one in its chip designs, and or in regaining manufacturing supremacy. If current promises pan out, it will have proven its nous in former. But with financial gap only widening, barring a miraculous turnaround, Gelsinger will be forced to rethink latter.