Intel Business Model 'Structurally Misaligned With Industry Direction,' Analyst Says

Intel Corporation INTC is facing a tough challenge as its business model is said to be "structurally misaligned with industry direction," according to a bearish note issued Sunday by Bank of America Global Securities.

The BofA Analyst: Vivek Arya maintained an Underperform rating on the stock, with a $25 price target.

The analyst argues that Intel's insistence on a capex-intensive integrated design/manufacturing model (IDM) is forcing it to compete against rivals that are more focused on just manufacturing or just design.

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While Intel has enhanced its IDM model and introduced separate reporting of its internal foundry service (IFS), the Santa Clara, California-based company's sub-scale IFS operation has less than 1% global market share, Vivek said, making it too small to provide a useful internal cost benchmark or a reliable indication of long-term external commitment.

Further, the analyst notes that Intel's current IDM structure raises barriers for its design teams to rely too much on external foundries, while making it harder for IFS to engage with external customers, risking or sub-optimizing current relationships with other foundries such as Taiwan Semiconductor Mfg. Co. Ltd TSM and Samsung.

Despite the challenges, BofA does acknowledge some positive factors.

A recovering PC market and the potential reopening of China in the second half of the year could provide some relief, as could Intel's aggressive cost-cutting measures and benefits from U.S./EU Chips Acts.

Additionally, the company's ability to close the manufacturing gap with TSMC and gain IFS share by leveraging U.S. manufacturing could be underappreciated.

As of now, Intel's stock has come close to testing its book value of $24.52 per share for the first time, indicating a value-reducing company strategy, Vivek said.

Price action: Shares of Intel are trading 0.23% higher in Monday’s premarket session to $26.46, according to data from Benzinga Pro.

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