Intel's Strategic Moves Under Scrutiny, Analysts Weigh In on New Financial Structure and Market Share

Susquehanna analyst Christopher Rolland maintained Intel Corp INTC with a Neutral and a $42 price target.

The analyst listed critical takeaways from his first-quarter 2024 PC-SIGnals Intel laptop CPU share improved by +1.2% sequentially, at the highest level since the first quarter of 2022, he noted due to Meteor Lake beginning to ramp (albeit slowly) and Raptor Lake refresh, while Advanced Micro Devices, Inc AMD lacks a new CPU.

Meteor Lake only represented ~0.2% of the Intel laptop mix (only one SKU from Acer and one from Asus, 11 total SKUs) after launching in December, consistent with Rolland’s checks that suggested MTL is taking longer to ramp than expected.

Intel took a modest desktop CPU share, up +0.4% sequentially, as Raptor Lake refresh continues to ramp, the analyst writes.

Rolland raised his 2024 PC estimates, with sellthrough up +1.7% year-on-year and ODM notebook builds up +1.3% year-on-year, generally in line with PC TAM expectations from Intel and AMD.

Aftermarket retail GPU prices increased for both Nvidia Corp NVDA and AMD, with high-end cards selling above MSRP, and GPU ASPs rose +16.8% sequentially in first-quarter of 2024, the first quarter of price increases since the fourth quarter of 2021, as per the analyst.

Nvidia’s aftermarket GPU model share was roughly flat sequentially, but Nvidia lost discrete GPU model share in both laptops and desktops, while the discrete GPU attach rate fell in both, Rolland flagged.

Chromebook CPU share was generally unchanged, with Intel flat sequentially, but Chromebook ASPs were up +7.1%. He added that SSD attach rates and capacities rose again, now at ~97% (new high), a mature market.

Mizuho analyst Vijay Rakesh reiterated a Buy rating on Intel with a price target of $55.

On Tuesday, Intel announced its new financial reporting structure, including the breakout of key groups Intel Products and Intel Foundry and the announcement of Lorenzo Flores as CFO of Intel Foundry (prior CFO Xilinx), the analyst said. Intel Products has its own CFO, Mark Henninger. 

Rakesh noted Intel is targeting ~60% and 40% gross margin and operating margin for its Products business, in line with prior targets, while its Foundry business is targeting 40% and 30% gross margin and operating margin long-term, though near-term operating margin much softer at (37%). 

The analyst noted the key focus for Intel remains the execution of the product roadmap with Granite Rapids/Falcon Shores and significant margin improvement in its Foundry business as it looks to become the leading Foundry globally. 

Intel gave more color as expected on Intel Products, where Rakesh noted Intel continues to use its 60% and 40% gross margin and operating margin targets vs. his estimate of ~50% gross margin and ~24% operating margin today. 

In the mid-term, the analyst said that Intel sees the foundry operating margin at breakeven and gross margin at ~15-20%. For Foundry, the company is targeting ~$15 billion in external revenue by 2030 with gross margin and operating margin of 40% and 30%, much better than the current operating margin of negative (37%) with over $15 billion of lifetime deal value already. 

Intel noted its foundry roadmap and plans to lower wafers outsourced to <20% by 2030 vs. ~30% today, per the analyst. Also, Intel plans to move to ~80% of production on EUV by 2030 (vs 10-15% today). 

Intel stock gained 23% in last 12 months. Investors can gain exposure to the stock via First Trust Nasdaq Semiconductor ETF FTXL and Invesco PHLX Semiconductor ETF SOXQ.

Price Action: INTC shares traded higher by 0.32% at $40.46 on the last check Thursday.

Also Read: Intel Targets $15B In Foundry Revenue By 2030, But Analyst Says TSMC Will Be ’10X Larger’

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