Intel should exit the foundry business, Citi says

Investing.com -- At the Citi TMT Conference on Tuesday, Intel (NASDAQ:INTC ) 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 manufacturing for CPUs is on track, we continue to believe it should exit the foundry business in the best interest of shareholders,” Citi analysts said in a Wednesday note.

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

Commenting on these remarks, Citi analysts noted that, as a result, Intel's foundry business is likely to be margin dilutive in 2025. Intel also expects to generate substantial foundry wafer revenue by 2027.

Moreover, the company outlined cost-saving measures, projecting $10 billion in capital expenditure savings and $4 billion in operational expense reductions for 2025. It also anticipates reducing its cost of sales by $1 billion next year and plans to save $500 million by skipping Intel 20A.

On 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 commentary from other companies such as Dell (NYSE:DELL ) and Western Digital (NASDAQ:WDC ),” analysts noted.

They also continue to expect Intel to achieve manufacturing parity with Taiwan Semiconductor Manufacturing (NYSE:TSM ) for client CPUs in the first half of 2025, though Intel's management noted that parity in the data center market could take longer.

Analysts maintained a Neutral rating on Intel stock and the target price of $25, which reflects 23.5x their estimated earnings per share (EPS) for 2025.

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

Source: Investing.com