Intel (NASDAQ:INTC) has many issues it needs to deal with, but one is bigger than all the others. Fortunately, there’s a solution to that problem – at least according to Northland’s Gus Richard, an analyst ranked in the top 3% of Wall Street stock pros.
So, what is that problem and how can Intel solve it? Well, Intel currently has two main businesses: Products and Manufacturing. The problem, says Richard, is that in advanced semiconductor production, design and manufacturing are two businesses that can “no longer belong under one roof.”
“Neither Intel nor any other chip company has the revenue and/or the volume to support leading-edge manufacturing,” the analyst goes on to say.
Foundries need multiple customers to cover rising fab costs, and although Intel has made advancements over the past four years, its 18A process node still lags behind TSMC’s 2N process. Additionally, the company’s “archaic design methodology” further weakens its position.
“Intel is dysfunctional, without leadership, and behind in process technology and products,” says the 5-star analyst.
It just doesn’t make economic sense to keep it all in one piece, so the solution is to “split manufacturing and Intel Products into separate companies.”
But what then? Well, according to Richard, the manufacturing arm should sell most of its fabs (to TSMC, Samsung, UMC, Global Foundries, Tower Semiconductor, or Rapidus) and focus on developing and licensing process tech, advanced packaging, and a chip implementation business for U.S. military needs.
“We think this is a way to jump-start a foundry ecosystem outside of Taiwan and minimize the amount of external funding INTC would need to stay afloat,” the analyst added.
Meanwhile, spinning off Intel Products could be the boost it desperately needs. Selling it to Broadcom or Qualcomm – companies with “far superior design capabilities” – could reinvigorate Intel’s x86 offerings, making them more competitive against AMD. Broadcom, for instance, could merge Intel’s x86 IP with hyperscaler AI accelerator IP.
A challenge here is Intel’s cross-license agreement with AMD, which allows both to use each other’s patents but can be revoked if either is acquired. However, AMD’s key 64-bit patents expired in 2023, and Richard thinks that having multiple x86 suppliers actually benefits AMD.
“X86 is a legacy architecture that will persist for decades, but reducing innovation and competition risks accelerates its decline,” the analyst says. And With ARM expanding in data centers, a strong, multi-sourced x86 ecosystem could be a an “attractive option relative to a potentially fragmenting” ARM ecosystem.
In the meantime, Richard rates INTC shares as an Outperform (i.e., Buy), along with a $28 price target, suggesting investors will pocket gains of ~35% a year from now. (To watch Richard’s track record, click here)
However, the are no other analysts backing Intel’s chances right now. With an additional 25 Holds and 5 Sells, the consensus view is that this stock is a Hold (i.e., Neutral). The average price target stands at $22.69, making room for 12-month gains of 9%. (See INTC stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.