Intel stock fell Wednesday after the chipmaker disclosed worse-than-expected financials for its nascent foundry business. Wall Street analysts expressed skepticism over the unit's near-term prospects.
Intel executives late Tuesday detailed how they are dividing the company's operations into two main businesses: one selling finished products and the other providing chipmaking services. The Intel Products unit is a customer of the Intel Foundry business.
Currently, Intel Foundry gets 95% of its business from the Intel Products unit. But Intel has set a goal to become the No. 2 contract chipmaker worldwide behind Taiwan Semiconductor Manufacturing.
However, analysts were shocked by Intel Foundry's deepening losses. The manufacturing business posted a $7 billion operating loss for 2023, vs. a $5.2 billion operating loss the year before. The unit had revenue of $18.9 billion in 2023, down 31% from $27.5 billion in 2022.
Intel Stock Drops On News
During an investor presentation, Chief Executive Pat Gelsinger said operating losses for the foundry business will peak in 2024. Intel expects the unit to break even on an operating basis by about 2027, he said.
"It was not pretty, but we applaud management for the chutzpah to admit that the Foundry business will take years to scale properly," Rosenblatt Securities analyst Hans Mosesmann said in a client note. He reiterated his sell rating on Intel stock with a 12-month price target of 17.
On the stock market today, Intel stock fell 8.2% to 40.33.
By separating its two main businesses, Intel is providing more transparency to investors and for potential foundry customers, analysts say.
Not A Prelude To Separate Companies
Wedbush Securities analyst Matt Bryson expressed doubts about Intel's financial targets.
"The primary criticism yesterday appeared to be around Intel's ambition to achieve 60% gross margin and 40% operating margin in 2030," Bryson said in a client note. "While the target echoes Intel's prior long-term model, the timing is 3-4 years subsequent to Intel's prior expectation."
While Intel is separating its two main businesses internally, don't expect it to split into two companies like Advanced Micro Devices did with GlobalFoundries, Daniel O'Regan said in a client note. O'Regan is managing director of equity trading for Mizuho Securities.
"Although some may view this as a potential step towards splitting the company into a fabless chip firm and one focused on foundry/manufacturing, such a move is unlikely to occur within the next few years," O'Regan said.
Intel stock ranks sixth out of 33 stocks in IBD's semiconductor manufacturing industry group, according to IBD Stock Checkup.
Additionally, Intel is receiving significant funding from the U.S. government under the CHIPS and Science Act. The government funding is a move to bring cutting-edge semiconductor manufacturing back to the U.S.
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