Intel Made False Claims About Revenue Growth in Foundry Business: Class Action

Intel, CEO Pat Gelsinger and Chief Financial Officer David Zinsner are liable for false statements made to investors related to the company’s Intel Foundry Services (IFS) group, alleged a securities fraud class action Friday (docket 0:24-cv-01602) in U.S. District Court for Northern California.

In an FY 2023 news release, Zinsner said Intel drove efficiencies in Q4 and “comfortably achieved” its commitment to deliver $3 billion in cost savings for the fiscal year. The chipmaker expected to “unlock further efficiencies in 2024 and beyond” under a new internal foundry model designed to “drive greater transparency and accountability and higher returns on our owners’ capital,” Zinsner said.

On Jan. 25, Gelsinger touted Intel’s “tremendous progress” in Q4 and FY ’23 toward its goal of becoming the “second largest external foundry by 2030,” said the release. Success with IFS would be measured by customer commitments and revenue, and Intel had “taped out more than 75 ecosystem and customer test chips,” said the release. Intel had over 50 test chips in the pipeline for 2024 and 2025, and Gelsinger pegged Intel’s “lifetime deal value” for IFS at over $10 billion.

At a March Morgan Stanley conference, Zinsner described Intel’s foundry model as a “significant tailwind to the earnings of the company,” said the complaint. The executive said Intel would start to see “a lot of the efficiencies that we think we can yield and get ourselves more competitive,” it said.

In Intel’s March 28 annual report, Gelsinger said Intel was seeing “significant traction” in “our foundry journey” and that it began 2023 with a commitment from one Intel 18A foundry customer and ended the year with four. As a result, the company expanded manufacturing capacity and capabilities to meet growing demand, said the report.

Those statements were “materially false and/or misleading and failed to disclose material adverse facts” about Intel’s business, operations and prospects, said plaintiff Patricia Quille, an Intel shareholder during the Jan. 25-April 25 class period. The defendants failed to disclose to investors that IFS growth wasn’t indicative of revenue growth reportable under the Internal Foundry segment; the Foundry experienced “significant operating losses in 2023; the Foundry had a profit decline due to lower internal revenue; and the foundry model wouldn’t be a strong tailwind to Intel’s IFS strategy,” said the complaint.

After the markets closed April 2, Intel issued a release with a “retrospective revision” of 2023 financial results under the foundry model reporting structure, revealing that the Foundry segment had a $7 billion operating loss on sales of $18.9 billion, said the complaint. The $18.9 billion Foundry revenue in 2023 was down $8.6 billion from 2022, the release said. On April 25, after markets closed, Intel released Q1 ’24 financial results, the first quarter reporting Intel’s results under the foundry model: the IFS segment fell 10% year on year to $4.4 billion, it said. Intel’s stock price dropped 9.2% on the news, closing the next day at $31.88 “on unusually heavy trading,” it said.

Quille asserts claims under the Exchange Act and seeks compensatory damages for herself and class members for all damages sustained as a result of defendants’ “wrongdoing.” She also seeks litigation costs and fees. Intel didn't comment.