Did you know that chip stock Intel (INTC) has a “problem child” in its operations? Do you know what that “problem child” is? Raymond James analyst Srini Pajjuri does, and the answer might surprise you. Identifying the issue has given investors hope, though, and shares of Intel were up over 2% in Wednesday afternoon’s trading.
Pajjuri, who serves as Raymond James’ senior semiconductor analyst, noted that Intel’s biggest problem right now is its foundry business. It is a money-losing operation, and Pajjuri looks for a potential split to come. The foundry business lost around $13 billion last year, and is likely to lose around $5 billion or so this year. Further, Pajjuri points to the foundry business as the big reason Intel’s share price has been in open decline for the last few months.
The Products division, meanwhile, is in far better shape. While it is not growing “as fast as it used to,” Pajjuri notes, it still produces around $50 billion in revenue with an operating margin of around 25%. It produces, and it is stable, which makes it a far more attractive business. And if the foundry business were out of the picture, Pajjuri believes Intel stock could be valued “…in the high 30s or so.”
Granite Rapids Opens Up
In a demonstration that Intel’s product business is still looking sharp, the Granite Forest line got a little bit of an augmentation as well. A processor geared mainly for the server market, reports note that the Granite Forest line is specifically geared toward “…hyperscalers and cloud builders who want to cram as many cores as possible into a socket….” That in turn means fewer actual servers are required to run operations.
The Granite River processors—the Xeon 6500P and Xeon 6700P—are said to be the “core” of the line. But there are several models within that line that work to provide processing power for multiple use cases. This should help ensure the largest possible market for potential users.
Is Intel a Buy, Hold or Sell?
Turning to Wall Street, analysts have a Hold consensus rating on INTC stock based on one Buy, 27 Holds and five Sells assigned in the past three months, as indicated by the graphic below. After a 44.19% loss in its share price over the past year, the average INTC price target of $22.69 per share implies 3.94% downside risk.
