4 Intel Analysts On 'Unleashed' Event, The Risks Of Chipmaker's Foundry Plans

At Intel Corporation's INTC "Intel Unleashed" event Tuesday, CEO Pat Gelsinger shared his vision for IDM 2.0, the company's integrated device manufacturing model.

Here's what the Street has to say. 

The Intel Analysts: BofA Securities analyst Vivek Arya reiterated an Underperform rating on Intel with a $62 price target.

Raymond James analyst Chris Caso analyst maintained a Market Perform rating.

Needham analyst Quinn Bolton maintained a Buy rating and increased the price target from $70 to $74.

Rosenblatt Securities analyst Hans Mosesmann reiterated a Sell rating and $40 price target.

Intel Is Adding Execution Risk, Rosenblatt Says: Fixing Intel'sstructural problems is quite the tall order as it is, and adding another dimension of execution risk in the form of a foundry battle with TSMC and Samsung just made the challenge incredibly complex, Mosesmann said in a note.

"Intel has no foundry services expertise and it should come as no surprise that Intel's corporate culture is just not set up for the services' aspect of the foundry business, in our opinion," the analyst said. 

Intel indicated that the first quarter of 2021 will exceed the original guidance due to strong notebook demand, he said. 

Yet the annual performance was "talked down" on PC mix issues and industry shortages, Mosesmann said. 

The 2021 outlook reflects weak adoption of new Ice Lake Server CPUs and the delay of the volume ramp of Sapphire Rapids server CPUs from the first half of 2022 to the second half, the analyst said. 

In this one-to-two-year void, the analyst sees Advanced Micro Devices, Inc. AMD running virtually unopposed in the server space in terms of new deployments.

"At the end of the day, the Unleashed event was about Intel's entry into the foundry services business that will take years to establish and commitment to the IDM model, which we already knew," he said. 

Related Link: 4 Intel Analysts On What New CEO Means For Chipmaker's Market Share, Turnaround

Why BofA is Cautious On Intel Stock: Although positive on the confidence and bold push of Intel's new CEO into an opportunity that could be supported by U.S. government incentives, BofA is cautious on the chipmaker's stock, Arya said in a note. 

There is no evidence that Intel can match or exceed the leading-edge capability of foundry leader, TSMC, which also plans to build several fabs in Arizona that will ramp in a similar timeframe, the analyst said.

Foundry, though driving incremental sales, could be dilutive to gross margins and free cash flow, he said. 

Intel will have to start from the ground-up in this new business, and balance potential conflicts of interest with customers, Arya said. 

Additionally, Intel is the only semiconductor vendor guiding sales, GM and FCF for calendar year 2021 down year-over-year, despite double-digit PC market growth, suggesting share losses will continue, the analyst said. 

RayJay Says Intel At Significant Competitive Disadvantage: The recent bull case on Intel is that the narrative would be more important than the numbers in the near term, and that has played out with the stock up despite an estimate cut for 2021, Caso said.

The event did not provide the analyst with a reason to change his skeptical stance, he said. 

"Intel appears more committed than ever to internal leading edge manufacturing, which brings risk, despite the credentials of the new CEO."

The Street is likely to be highly skeptical about the newly launched foundry business, which will consume capital, Caso said.

Additionally, customers will approach an Intel foundry with caution given the disastrous outcome of Intel's prior foundry engagements, the analyst said. 

Intel will likely remain at a significant competitive manufacturing disadvantage for many years, providing lots of time to lose share in the interim even if the plan eventually succeed, according to Raymond James. 

Needham Says What's Old Is Now New Again: The Intel Unleashed event signaled a return to its roots, Bolton said. 

At the event, Intel provided a positive update on its 7nm process and reiterated a plan to build the majority of its products in-house, while also increasing its use of third-party foundries, the analyst said. 

Intel is increasing its engagement with Taiwan Semiconductor Manufacturing Company Limited TSM, Samsung, GlobalFoundries and United Microelectronics Corporation UMC, he said. 

The company launched its Intel Foundry Service to address capacity constraints of the industry and the to bring about a more geographically balanced manufacturing capacity, Bolton said. 

IFS, the analyst said, will offer manufacturing locations in the U.S. and Europe.

Intel plans to target commercial customers, as well as unique opportunities in government and security requirements in the U.S., he said. 

The company also plans a $20-billion spend on two new fabs in Arizona, Bolton said.

These fabs will support Intel's current products as well as its foundry customers, the analyst said. 

INTC Price Action: At last check, Intel shares trading down slightly at $63.43. 

Related Link: What Intel Investors Should Know About Chipmaker's Upcoming 'Unleashed' Event