Intel: We Maintain Our Fair Value Estimate Amid CEO Pat ...
We maintain our fair value estimate of $21 per share for Intel INTC upon the announcement that CEO Pat Gelsinger has retired and will not lead the firm’s turnaround in the months ahead. Intel’s stock rallied about 4% to $25 per share on the news. Given Gelsinger’s loyalty to Intel, we attribute the appreciation to the market’s greater optimism that Intel will be broken up and unlock shareholder value.
We remain skeptical of this playbook, however. For any potential upside for Intel associated with spinning out its industry-leading PC and server processor design business, we fear the overhang of a massive, costly manufacturing business that will lose its primary customer (Intel’s internal CPU design team). We think this overhang would only worsen if Intel’s manufacturing development of Intel 18A in 2025 is not progressing as well as advertised, or if the US government Chips Act funding won’t be as supportive as initially envisioned.
From our point of view, Gelsinger’s strategy was the proper one—focusing on leading-edge CPU development while investing in advanced manufacturing so that Intel’s fabrication facilities remained the best option for the company’s design team. This integrated device model served Intel well for decades when it had both best-of-breed CPU design and fabs. Gelsinger’s exit may fast-track a breakup of design versus fabs. Again, however, for any upside we foresee in the design business, we view the fabs as less attractive for a potential buyer.
The best bull-case scenario we foresee is if the design team was spun out of Intel (perhaps to remain independent, or to merge with another fabless firm like Qualcomm QCOM, as has been speculated). Given the US government’s focus on onshore chip manufacturing, perhaps an even larger package of funding or incentives could prop up the fab business and make it less of an overhang on the Intel entity.
Key Morningstar Metrics for IntelFair Value Estimate: $21.00Morningstar Rating: 3 starsMorningstar Economic Moat Rating: NoneMorningstar Uncertainty Rating: Very HighINTC Stock Price vs Morningstar Fair Value Estimate
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