Can India capitalize on semiconductor manufacturing after Intel's $7 billion chip-making division loss in 2023?

Intel has revealed a significant setback in its chip-making division, with operating losses totaling $7 billion for 2023, surpassing the previous year's losses of $5.2 billion. Revenue for the unit also saw a sharp decline, dropping 31% from $27.49 billion to $18.9 billion.

This disclosure has led to a 4.3% decrease in Intel's shares following the filing of documents with the U.S. Securities and Exchange Commission (SEC). CEO Pat Gelsinger addressed investors, indicating that 2024 is anticipated to mark the peak of operating losses for the chipmaking business, with a projected break-even point around 2027.

Gelsinger attributed the foundry's struggles to past decisions, notably the reluctance to adopt extreme ultraviolet (EUV) machines from ASML, a move that proved costly in terms of efficiency and competitiveness. As a consequence, Intel has outsourced approximately 30% of its total wafer production to external manufacturers like TSMC, with plans to reduce this figure to around 20%.

The company has since transitioned to using EUV tools, expecting them to enhance cost-effectiveness and performance. Gelsinger emphasized Intel's renewed competitiveness in pricing and performance, particularly as it phases out older machinery.

India's government has greenlit a substantial investment in semiconductor and electronics production, paving the way for the nation's inaugural state-of-the-art semiconductor fab. In a significant move, three plants—a semiconductor fab along with two packaging and test facilities—are set to commence construction within 100 days. With an approved budget of 1.26 trillion Indian rupees (equivalent to US $15.2 billion), these projects signal India's concerted effort to bolster domestic chip manufacturing, aiming for greater self-sufficiency in a strategically crucial industry.

This initiative aligns with a broader global trend aimed at enhancing regional autonomy in semiconductor production. Frank Hong, chairman of Taiwan-based foundry Powerchip Semiconductor (PSMC)—a key partner in the upcoming fab—highlighted India's advantageous position, citing the nation's burgeoning domestic demand and its appeal to global customers seeking enhanced supply-chain resilience.

The inaugural fab represents an $11 billion joint venture between PSMC and Tata Electronics, a subsidiary of the esteemed $370 billion Indian conglomerate. Equipped to handle 28-, 40-, 55-, and 110-nanometer chip production, with a monthly capacity of 50,000 wafers, the facility is poised to play a pivotal role. Despite not being at the forefront of technology, these nodes remain integral to chip manufacturing, with 28 nm representing the most advanced node utilizing planar CMOS transistors rather than the more advanced FinFET devices.

In a bid to revitalize its business, Intel intends to invest $100 billion in constructing or expanding chip factories across four U.S. states. Central to its turnaround strategy is attracting external companies to utilize its manufacturing services.

As part of this initiative, Intel will begin reporting the results of its manufacturing operations as a separate entity. The company's aggressive investments reflect its ambition to catch up with leading chipmakers like TSMC and Samsung Electronics.