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The future of Intel (NASDAQ:INTC) is largely tied to CEO Pat Gelsinger's vision of turning the chip giant into a semiconductor foundry and competing with Taiwan Semiconductor (TSM) and others in the industry.
Although the foundry unit has had Although some external designs win, it remains “totally dependent” on Intel's internal design team, making the entire company worth less, Bank of America said.
“Essentially, we highlight the upcoming cyclical rebound in PCs (plus the incremental benefits of ai PCs thanks to the Apple M4 and Win10 refresh) and Foundry's improving scale/profitability as positives, particularly given that “PCs still account for 50-60% of sales,” wrote analyst Vivek Arya. in a note to clients. “However, a continued wallet shift toward accelerated computing (XPU (and) networking versus traditional CPUs) and the emergence of other cutting-edge foundries in the US (TSMC (and) Samsung with $6-7 billion each one in CHIPS Act awards) remain concerns.”
Arya now has a $44 price target on Intel, down from the $50 price target he had, which was the result of a sum-of-parts valuation of Intel's products and foundry business, plus its stakes in Mobileye (MBLY) and its programmable chip unit. , the former Altera. He reiterated his Neutral rating on the stock.
Intel recently revealed that its foundry business had an operating loss of $7 billion on revenue of $18.9 billion in 2023, larger than the $5.2 billion loss it posted in 2022.
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Intel has lagged behind its peers in most facets of its business, including the all-important data center, where companies like Nvidia (NVDA) have gained market share through GPUs used for artificial intelligence.
Although Intel has tried to catch up – recently announcing its Gaudi3 accelerator – the new offering is not expected to make a dent, Arya said.
“…We expect modest initial traction with (less than) 1% share, or a sub-$1 billion run rate,” Arya said of the new accelerator, which is scheduled to launch in the second quarter and will cost ” much less” than Nvidia's H100 offering.
Additionally, other foundries, notably Taiwan Semiconductor (TSM) and Samsung (OTCPK:SSNLF), are “rapidly emerging” in the US given their strength in edge nodes and recent support from the Biden administration.
Taiwan Semiconductor recently received $6.6 billion in grants (and $5 billion in loans) to boost domestic manufacturing of advanced semiconductors, while Samsung is expected to get between $6 billion and $7 billion in a short time.
Intel received nearly $20 billion in CHIP Act grants and loans, including $8.5 billion in grants, to boost chip production in the United States.
And while Taiwan Semiconductor's U.S. factories are considered to be a year or two behind the company's plants in Taiwan, they “generally” match Intel's capabilities, Arya said.
Possible positive catalysts for Intel include continued recovery in the PC market, a Windows 10 refresh, ai-focused PCs, and improved foundry profitability and new customers, Arya said.
