Chipzilla appeared to have been rebuilding momentum in the last year, but an epically bad financial update on its manufacturing segment has many investors rethinking their investment.

Intel has been positioning itself as a "national hero" in US chip manufacturing. It has received billions of dollars in grants and tax incentives from the U.S. CHIPS Act, similar assistance from the European Union's Chips Act, and private investment from infrastructure investor Brookfield.

These moves proved popular with investors because of the dominance of Taiwan Semiconductor Manufacturing, the giant third-party chip foundry that makes some 90 per cent of the world's most advanced semiconductors (including many of Intel's most advanced chips). Many investors are worried about the implications of China's possible invasion of Taiwan. Plus, Western governments want more chip manufacturing resilience, which is another way of saying they'd like more semiconductor manufacturing relocated outside China's potential sphere of influence and onto their shores.

So Intel is pursuing those government funds to build a manufacturing infrastructure that can compete with TSMC and offer top chip designers like Nvidia, Advanced Micro Devices, and Qualcomm an alternative fab shop.

However, Chipzilla’s "Intel Foundry" business is operating at a steep loss. It generated a $7 billion operating loss 2023 on Intel Foundry revenue of $18.9 billion. (Most of those sales come from Intel's "Product" segment, which has been reshuffled to report as a non-manufacturing design house.)

Intel revealed that even during the previous chipmaking boom, Foundry generated operating losses of $5.1 billion in 2021 and $5.2 billion in 2022.

Intel management has an imprecise timeline for getting the Foundry segment out of its deep hole, although CEO Pat [kicking] Gelsinger said the unit should reach breakeven within the next few years. That isn't precisely heartwarming news. While Intel capitalises on government funds to fix its business model issues, other semiconductor manufacturers (including TSMC) already operate at healthy profits.

Of course, one way to look at this is that Intel is all upside down from here on out as it solves problems and gets ample sums of money to build a robust chipmaking operation that is not located in Taiwan. However, Intel is one of many companies that get government funds. So is TSMC. It was just awarded up to $6.6 billion in direct funding from the US CHIPS Act, plus another $5 billion in loans and other tax incentives, to bolster and expand the facilities it is building in Arizona.

Given the mountain Intel needs to climb, its share price is high, and there are lots of other semiconductor businesses in better shape right now.