Intel Should Exit Foundry Business, Says Citi By Investing.com

Investing.com — At the Citi TMT conference call on Tuesday, Intel (NASDAQ: ) provided updates on its cost-saving initiatives, its manufacturing strategy and the state of the PC market. Notably, the company also mentioned that it expects to generate significant foundry revenue by 2025.

“While in our view Intel’s processor manufacturing is on the right track, we continue to believe it should exit the foundry business in the best interest of shareholders,” Citi analysts said in a note on Wednesday.

The chipmaker said it anticipates significant foundry revenue from its advanced packaging in 2025, with the foundry business expected to achieve gross margins of 40% and operating margins of 30% by 2030.

Commenting on these observations, Citi analysts noted that as a result, Intel’s foundry business is likely to dilute margin in 2025. Intel also expects to generate substantial wafer revenue through 2027.

Additionally, the company highlighted cost-saving measures, projecting $10 billion in capital spending savings and $4 billion in operating expense reductions by 2025. It also anticipates cutting cost of sales by $1 billion next year and plans to save $500 million by ditching the Intel 20A. .

In the PC market, Intel acknowledged that while currently sluggish, the chipmaker believes it will return to normal seasonality by the fourth quarter of 2024.

“This is in line with comments from other companies such as Dell (NYSE: ) and Western Digital (NASDAQ:),” analysts noted.

They also continue to expect Intel to reach production parity with Taiwan Semiconductor Manufacturing (NYSE: ) for customer processors in the first half of 2025, although Intel management noted that parity in the data center market could take longer .

Analysts maintained a neutral rating on Intel stock and a $25 price target, which reflects 23.5 times their estimated 2025 earnings per share (EPS).

“We expect Intel’s EPS to be under pressure given its foundry business, which we believe has a minimal chance of succeeding.”