Citi Analysts Predict Major Margin Gains for Intel
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Citi's Insights on Intel's Foundry Business Strategy
Citi analysts have projected that Intel (NASDAQ: INTC) could greatly enhance its profitability by stepping away from its foundry business. According to recent discussions, Intel is considering strategic options that may include selling off certain divisions to better align with its future goals.
Potential Changes and Financial Implications
While Intel has yet to confirm these strategies, Citi strongly suggests that removing the foundry component could be transformational for the company's financial health. The analysts highlighted the limited prospects for Intel to emerge as a profitable contender in the foundry market.
A Focus on Shareholder Interests
Citi has expressed that prioritizing shareholder value should dictate this decision. Analysts stated, "We continue to believe Intel would be better off exiting the foundry business in the best interest of shareholders," pointing to the significant losses observed within that sector.
Current Losses in the Foundry Division
Recent reports indicate that Intel's foundry operations incurred a staggering loss of $2.8 billion in the last quarter and are expected to lose approximately $8.0 billion each year. Particularly striking was the rejection of Intel's 18A wafers by Broadcom, which has raised concerns about the foundry's impact on the company's overall financial performance.
Potential Financial Boost from Exiting the Foundry
If Intel decides to exit the foundry business, Citi estimates that the firm could witness a notable improvement in earnings per share (EPS), foreseeing figures within the $3.00-$4.00 range. Furthermore, gross margins may rise to the low-to-mid 50% range, marking a significant turnaround.
Keeping Core Manufacturing Operations
Despite the recommendations for reducing exposure to the foundry, Citi advises that Intel should retain its CPU manufacturing capabilities. This retention could help preserve synergies between the design and manufacturing processes.
Future Competition and Direction
Looking ahead, Citi believes that Intel has the potential to catch up with competitors like Taiwan Semiconductor Manufacturing Company (TSMC) by 2025. However, they caution against Intel becoming entirely fabless, advocating instead for a balanced approach.
Conclusion: Navigating Forward with Strategic Options
Maintaining a Neutral rating on Intel and setting a $25 price target, Citi’s analysts conclude that while challenges lie ahead, an exit from the foundry business could represent a proactive move for enhancing shareholder value.
Frequently Asked Questions
What is Citi's stance on Intel's foundry business?
Citi suggests that exiting the foundry business could significantly enhance Intel's profitability and margins.
What are the projected losses for Intel's foundry division?
Intel's foundry division is projected to lose about $8.0 billion annually, with a $2.8 billion loss reported last quarter.
How could exiting the foundry impact Intel's earnings?
Citi estimates that exiting the foundry could improve Intel's EPS to the $3.00-$4.00 range and increase gross margins to the low-to-mid 50% range.
Should Intel remain in CPU manufacturing?
Citi recommends retaining CPU manufacturing due to its beneficial synergies with CPU design.
What is Intel’s future outlook according to Citi?
Citi believes that Intel could catch up with TSMC by 2025 if it focuses on its strengths and avoids becoming completely fabless.
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