Wall Street analysts say Intel's plan to separate its programmable chip business into a stand-alone company signals that the chipmaker needs cash to fund its revitalization initiative. Intel stock rose on Wednesday.
Santa Clara, Calif.-based Intel announced late Tuesday that it intends to operate its Programmable Solutions Group, or PSG, as a stand-alone business starting Jan. 1.
Intel said the move will allow PSG to more effectively compete in the market for field-programmable gate arrays — processors that can be customized to suit the needs of the technology for which they are being used. The FPGA market serves the data center, communications, industrial, automotive, aerospace and defense sectors.
The separation will give PSG autonomy and flexibility to accelerate its growth, Intel said. The move also will allow PSG to seek private and public equity investments. Intel intends to conduct an initial public offering for PSG in the next two to three years.
Intel Hopes To Unlock Value With PSG IPO
On the stock market today, Intel stock climbed 0.7% to close at 35.93.
"Our intention to establish PSG as a standalone business and pursue an IPO is another example of how we are consistently unlocking more value for our stakeholders," Intel Chief Executive Pat Gelsinger said in a news release.
The announcement follows the successful completion of an IPO for Intel's Mobileye business in 2022, as well as announced investments by Bain Capital Special Situations and Taiwan Semiconductor Manufacturing in Intel's IMS Nanofabrication subsidiary this year.
Intel Stock Gets Renewed Sell Rating
Intel acquired the PSG business in December 2015 when it bought Altera for $16.7 billion. PSG could have a valuation now of $20 billion to $25 billion, Wells Fargo analyst Aaron Rakers said in a client note. Rakers rates Intel stock as equal weight, or neutral.
Rosenblatt Securities analyst Hans Mosesmann reiterated his sell rating on Intel stock on Wednesday.
"The move is more tactical than strategic as Intel is starved for cash," Mosesmann said in a research note. Intel is investing heavily to revitalize its PC and server chip businesses following market-share losses to rival Advanced Micro Devices.
Mosesmann believes Intel mismanaged the Altera business early on and only recently began to reinvest and focus on it.
"The 2-3 year timeline suggests Altera is not strong enough on its own today to be stand-alone," he said. "Otherwise, they would have sold the unit."
Proposed IPO Is 'More Spin Than Spin Off'
The breakout of the PSG business seems like "more spin than spin off," Barclays analyst Blayne Curtis quipped in a client note. He rates Intel stock as equal weight.
"We don't see this as much of a positive catalyst," Curtis said. "We appreciate the continued efforts to right the ship, but we remain on the sidelines as we are skeptical that Intel can execute on its roadmap and see some downside to Q4/Q1 estimates."
Sandra Rivera, executive vice president at Intel, will assume leadership of PSG as chief executive officer. She currently leads Intel's Data Center and AI Group.
Meanwhile, Shannon Poulin was named chief operating officer of PSG. He is now corporate vice president and general manager of PSG.
Intel stock ranks No. 14 out of 32 stocks in IBD's semiconductor manufacturing industry group, according to IBD Stock Checkup. INTC stock has a poor IBD Composite Rating of 50 out of 99.
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