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The future of Intel (NASDAQ:INTC) is largely tied to CEO Pat Gelsinger’s vision to transform the chip giant into a semiconductor foundry and compete with Taiwan Semiconductor (TSM) and other industry players.
While the foundry unit had some external designs win, but it is still “completely dependent” on Intel’s internal design team, making the entire company worth less, Bank of America said.
“Fundamentally, we highlight PC’s upcoming cyclical recovery (plus incremental PC AI benefits from Apple M4, Win10 update) and Foundry’s improved scale/profitability as positives, particularly considering PCs still represent 50- 60% of sales,” analyst Vivek Arya wrote. in a note to customers. “However, the portfolio’s continued shift towards accelerated computing (XPU [and] networking over traditional CPUs) and the emergence of other cutting-edge US foundries (TSMC[ and] Samsung with $6-7 billion each in CHIPS Act premiums) concerns remain.”
Arya now has a $44 price target on Intel, down from the $50 price target it had, the result of a summary valuation of parts for Intel’s products and foundry business, plus its holdings in Mobileye (MBLY) and its programmable chip drive. , the former Altera. You reiterated your Neutral rating on the stock.
Intel recently revealed that its foundry business posted an operating loss of $7 billion on revenue of $18.9 billion in 2023, higher than the $5.2 billion loss reported in 2022.
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Intel has fallen behind its competitors in most aspects of its business, including the all-important data center, where companies like Nvidia (NVDA) have gained market share via GPUs used for artificial intelligence.
While Intel has been playing catch-up, recently announcing its Gaudi3 accelerator, the new offering shouldn’t make an impact, Arya said.
“…[W]We expect modest initial traction a [less than] A 1% share, or a run-rate of less than $1 billion,” Arya said of the new accelerator, which is expected to be released in the second quarter and will cost “much less” than Nvidia’s H100 offering.
Additionally, other foundry companies – notably Taiwan Semiconductor (TSM) and Samsung (OTCPK:SSNLF) – are “emerging rapidly” in the US given their strength in cutting-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 production of advanced semiconductors, while Samsung is expected to get between $6 and $7 billion in short order.
Intel received nearly $20 billion in grants and loans from the CHIPs Act, including $8.5 billion in grants, to boost chip production in the United States.
And while Taiwan Semiconductor’s U.S. factories are seen as a year or two behind the company’s factories in Taiwan, they “generally” match Intel’s capabilities, Arya said.
Potential positive catalysts for Intel include the continued recovery of the PC market, a Windows 10 refresh, AI-focused PCs, and improved foundry profitability and new customers, Arya said.