A prominent Wall Street investment bank said Thursday called on chip giant Intel (INTC) to exit its foundry business.
At the same time, an analyst with another firm said investors should sell the stock.
Foundries are the factories that build semiconductors based on the internal corporate designs or, in the case of Taiwan Semiconductor (TSM) , builds chips based on others’ designs. Taiwan Semi customers include Nvidia (NVDA) and Advance Micro Devices (AMD) . and companies building chips for cell phones based on designs from Arm Holdings (ARM) .
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Intel has been betting that its future depends on its ability to make state-of-the-art chips for itself and others in foundries located in the United States. The plan would be financed with $8.5 billon in grants and $11 billions in federal loans.
The problem is that not a dime of the money has been made available to the storied semiconductor company, whose results this year have been subpar. Moreover, the Commerce Department and Intel are at loggerheads about disclosure requirements.
A separate chip factory, not the in the scope of the grant-and-loan aid package, is already underway, a $28-billion project in Licking County, Ohio, near Columbus.
Minimal chance of success
Intel executives presented at the Citi TMT conference on Wednesday. By Thursday morning, Citi analyst Christopher Danely, bearish on Intel already, repeated his call for Intel to get out of the foundry business. He gave the stock at $25 target.
It’s too expensive, Danely wrote, and its plan “has minimal chance of succeeding.” (TMT stands for Telecommunications, Media, and Technology.)
Intel shares finished down 3 cents to $19.40 in Nasdaq trading on Thursday. The shares were up after hours to $19.45.
That’s the good news.
Intel shares are down 61.4% for the year and nearly 12% just in the first three days of September. They fell 28.3% in August. And they’re trading just above their 52-week low of $18.84, reached on Aug. 8.
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The stock’s collapse came after Intel reported a second-quarter loss of $1.61 billion, and the company said it would cut 15,000 jobs. The report sent shares to their worst rout in decades.
Citi wasn’t the only firm to give Intel bad news this week.
Analyst Hans Engel at Austrian-based Erste Group Research downgraded Intel shares from “hold” to “sell” on Thursday. He didn’t offer a price target. He blamed “the very unclear outlook, the weak sales (declining market share for its server CPUs) and the high level of debt.”
He did concede Intel was in a transformation phase.
There’s speculation it could be replaced as a component in the Dow. Intel greatest success came in the 1990s when its chips powered computers running on Microsoft MSFT windows. It has not been a player in chips powering artificial intelligence applications.
An Intel employee holds holds a wafer that new Itanium2 processor is made from at a June press conference in Tokyo, Japan.
Koichi Kamoshida/Getty Images
The Broadcom problem
One other report from Reuters suggested another issue: Tests of new Intel silicon wafers by semiconductor company Broadcom (AVGO) failed.
Wafers are foot-wide discs on which semiconductor circuitry is etched. Broadcom is considering having Intel manufacture chips. It’s not clear what the next step will be.
Intel’s board is to meet later in December and may decide to do major surgery, including a split of its product-design and manufacturing businesses, scrapping some of its new factory projects and maybe mergers or acquisitions.
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