Intel Corporations Foundry Business Set to Grow to Over $1 Billion Per Year in Revenue

By Markets Fool.com

According to his LinkedInprofile, Intel foundry Chief Sunit Rikhi retired from the company in May 2015. Although the fact that Rikhi retired from Intel is an interesting piece of information in its own right (why leave now?), what he had to say in his profile about the business is far more interesting.

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How big is Intel's foundry business, anyway?
Take a look at the following from Rikhi's profile:

Source: LinkedIn

The most interesting part of this description is the following line:

At the time he left Intel, the business was on a path to ramping volume to over a billion dollars of revenue run rate.

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If we are to take this sentence at face value, this implies that Intel had won enough business to amount to "over a billion dollars of revenue" on an annual basis. The good news, then, is that this means that Intel has won enough foundry contracts such that the foundry business will -- probably within a few years -- actually start contributing to the company's top and bottom lines.

While $1 billion in revenue on an annualized basis isn't enough to put Intel in the foundry big-leagues, it would certainly be a reasonable start to what is still basically a nascent business for the company.

Potential contribution to Intel's bottom line
Intel has said that it expects its foundry business to be "margin neutral." In other words, the foundry business shouldn't be outside of the company's long-term corporate gross profit margin target of 55% to 65%.

If we assume that Intel's gross profit margins on foundry wafers are 55% (the low end of Intel's corporate range), then $1 billion worth of business could add $550 million to the company's total gross profit.

Given that Intel is already likely already incurring operating expenses associated with foundry (Rikhi's profile says the business has "over a thousand engineers"), I don't expect much in the way of incremental operating expenses to grow this business in the near-to-medium term.

If I'm right, then most -- if not all -- of that $550 million will show up as pretax income, which could be a nice boost for Intel.

More than ten customers, eh?
Also notice that according to Rikhi's profile, Intel has "more than 10 customers" for its custom foundry business. To my knowledge, the last Intel foundry customer to "go public" was Panasonic. At the time of the press release announcing that Panasonic would be joining the ranks of Intel's foundry customers, Intel had six foundry customers.

That means that there are more than four customers that Intel has signed on that haven't yet gone public. It'll be interesting to see who else has signed on for Intel's custom foundry services.

Is an Apple win in there? Probably not.
One deal that people have talked a lot about is the potential for Intel to build Apple's A-series processors found inside of the iPhone and the iPad. I believe this business is worth far more than $1 billion, so I don't think Intel is a candidate for Apple's business at the 14-nanometer or 10-nanometer nodes.

Will we hear more about this business later this year?
Given that it seems that Intel has a reasonable set of foundry wins lined up, Intel might talk about this business at the company's investor meeting this year. In particular, it would be interesting to know when this foundry revenue will begin to pour in and what the company expects the growth rate of this business to be over the next five years or so.

The article Intel Corporations Foundry Business Set to Grow to Over $1 Billion Per Year in Revenue originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple, Intel, and LinkedIn. The Motley Fool owns shares of Apple and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.