Northland Reiterates Outperform Rating on Intel (INTC)

Northland analyst Gus Richard reiterated an Outperform rating and $28.00 price target on Intel (NASDAQ: INTC).

The analyst comments "Intel does not have the skill, resources, or scale to build and fill leading edge fabs. We believe the only option is to split the Company into Intel Products and Manufacturing. The Manufacturing company should further sell off most of the fabs, focus on licensing process technology, advanced packaging, and servicing ultra-high-end US military demand. Splitting up Intel would simultaneously reduce the need for external capital, accelerate a US foundry ecosystem, and unlock shareholder value. Fabs: The most challenging part of splitting up Intel is what to do with the fabs. We believe it needs a new business model, and it also needs to be right-sized. The value of Intel's manufacturing is its ability to develop process technology. We would not simply split off the fabs from Intel Product. We would sell most of the fabs to TSMC, Samsung, UMC, Global Foundries, Tower Semiconductor, or Rapidus. The remaining part, Intel Development Corp., would be its fab complex in Oregon and its advanced packaging fab in New Mexico. IDC would be a fab primarily for the US military, offering advanced process technology and implementation services. Selling its older fabs and licensing process technology would help expand the foundry network outside of Taiwan and enable 2nd tier foundries to close the process technology gap with TSMCs. Other than Samsung and SMIC, Intel is the only company with a FinFET process needed to move below 12nm. TSMC buying US fabs would accelerate its footprint in the US. IDC could generate a license and royalty revenue from process technology IP customers and provide advanced packaging capabilities to licensees. Process IP licensees could also offer Intel Products capacity. 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. Intel Products: Splitting off Intel Products could reinvigorate it, particularly if Intel Products were sold to BRCM or QCOM, which have far superior design capabilities. These companies could redesign Intel's x86 products to be more competitive with AMD. Moreover, BRCM is an ASIC provider and could integrate x86 IP with hyperscaler AI accelerator IP. The pushback on selling Intel Products is the broad cross-license agreement with AMD. AMD and Intel have a cross-licensing agreement that allows them to use other patents without the risk of lawsuits. If either company is acquired, the other can cancel the license. There are reasons to believe the AMD/INTC license agreement will not be an issue. AMD’s key 64-bit patents expired in 2023. Second, it is in AMD's best interest to have multiple suppliers of x86. X86 is a legacy architecture that will persist for decades, but reducing innovation and competition risks accelerates its decline. ARM is entering the data center CPU chip market, making it a threat to its licensees. This may fragment the ARM instruction set as we believe Apple, Amazon, Google, INTC, Microsoft, Nvidia, Qualcomm, and Samsung have architectural licenses. A multi-sourced x86 instruction set from two strong fabless companies with decades of code, development tools, and industry expertise is an attractive option relative to a potentially fragmenting ARM ecosystem in data center applications."

For an analyst ratings summary and ratings history on Intel click here. For more ratings news on Intel click here.

Shares of Intel closed at $21.33 yesterday.

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