Intel Corporation Could Generate Gains by Exiting Foundry Business, Citi Says
Citi analysts believe that Intel Corporation could generate near-term gains by exiting its foundry business, but the resignation of Pat Gelsinger as CEO poses risks to the company’s long-term value. The analysts argue that it would be in the best interest of Intel shareholders for the company to cease its attempts at being a merchant foundry and sell off the business.
Gelsinger was a champion of the ailing foundry unit, but his departure could lead to “long-term pain” if the new CEO does not share his technical expertise. Intel’s foundry business has been steadily losing cash, and the company has a slim chance of succeeding in the business. Gross margins could improve substantially if the unit is divested.
The company’s shares fell slightly after the announcement, and the brokerage holds a Neutral rating on the stock with a price target of $22.0. Intel has largely lagged rivals such as TSMC and NVIDIA in rolling out cutting-edge silicon, and its shortcomings have become even more apparent over the past two years amid increased interest in artificial intelligence.
Gelsinger’s exit came less than four years into his tenure, and the board lost faith in his plan to turn around the ailing chipmaker. The company recently outlined plans to spin off the foundry business, but a recent $7.86 billion government subsidy won by the company came with the caveat that Intel could sell only a limited stake in its foundry unit.