Intel CEO Krzanich Seeks Profitability in Opening Up Factories

Intel Corp. (INTC) Chief Executive Officer Brian Krzanich said he won’t compete on price with lower-cost chipmakers such as Taiwan Semiconductor Manufacturing Co. when he opens Intel’s factories for other companies to use.

Krzanich, who said in November that Intel is expanding its foundry business, would rather have competitors pay to use his company’s manufacturing facilities than lower chip prices and sacrifice profit margin, the CEO said yesterday.

“We are being very pragmatic,” Krzanich said at a company event at the Consumer Electronics Show in Las Vegas. “If I get the same margin, do my shareholders care? I’m not going to get into a price war with TSMC.”

Krzanich, who was promoted to CEO in May, broke with his predecessors in saying he would consider letting competitors take advantage of what Intel calls the best plants in the industry. The company, whose semiconductors power more than 80 percent of personal computers, is seeking growth in new businesses as it struggles to gain traction in the smartphone market, where it supplies less than 1 percent of processors.

In October, Intel forecast gross margin, or the percentage of sales remaining after production costs, of about 61 percent for the fourth quarter. For 2014, Intel’s margin will be in the middle of its target range of between 55 percent and 65 percent, Chief Financial Officer Stacy Smith said at an analyst meeting in November.

TSMC produces chips for companies like Qualcomm Inc., which dominates the mobile phone market. The Taiwanese company had a gross margin of 48.5 percent in the third quarter and predicted profitability of between 44 percent and 46 percent for the fourth quarter.

Intel shares, which gained 26 percent in 2013, fell less than 1 percent to $25.42 at 11:26 a.m. today in New York.

-- With assistance from Tim Culpan in Taipei. Editors: Ari Levy, James Callan

To contact the reporter on this story: Pui-Wing Tam in San Francisco at ptam13@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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