Intel's first major contract foundry customer still a mystery as analysts sift through presentation

By Wallace Witkowski

Push may be 'at the detriment to CPU growth,' one analyst remarks

Intel Corp. stock ended Wednesday as the worst performer in the Dow Jones Industrial Average for a second day in a row as analysts appeared disappointed that the chip maker did not name a major customer for its fledgling third-party foundry business as hoped.

On Wednesday, Intel (INTC) held an online event with Wall Street analysts to outline changes on how it will account for its manufacturing unit separately from its products business in the first quarter of 2024, and said it hoped to name a major customer for its Intel Foundry Services, or IFS, business that it hopes to use to compete with Taiwan Semiconductor Manufacturing Co. (2330.TW).

Intel operates its own foundries -- or fabs, those high-tech plants that create the silicon wafers onto which transistors are etched to make microchips -- unlike other chip makers that are "fabless," like Nvidia Corp. (NVDA), Advanced Micro Devices Inc. (AMD), Qualcomm Inc. (QCOM), and Apple Inc. (AAPL), which use third-party fabs like TSMC for their chips.

Read:Why Intel was the Dow's worst performer for a second day in a row

Evercore ISI analyst C.J. Muse, who has an in-line rating and $36 price target, joined other analysts in stating Intel is in for the long haul, reiterating his "tactical long" on the stock, in-line rating and low $30s price target.

"We believe this transition will be a positive from both a cost perspective (accountability for business units is big) and customer confidence perspective -- with the transparency and allowance for greater competition likely proving beneficial to the roadmap and execution," Muse said.

"Overall, we are positive on the moves Intel is making to improve the company's operations, execution and competitive positioning," Muse said. "That said, it is still an uphill battle to regain leadership -- which will take several years to play out while [data-center] spend continues to shift towards accelerated architectures (potentially at the detriment to CPU growth)."

Read from Tuesday: Intel stock drops as foundry capacity buildout plans have one analyst predicting a company split

KeyBanc Capital Markets analyst John Vinh, who has a sector weight rating and a $35 price target, wondered whether the changes would be enough to boost the foundry business.

"While we think this internal realignment makes sense and is necessary, we believe it's unclear whether this will be enough to help Intel achieve leadership in IFS," Vinh said. "Our concern is that business units will ultimately have limited freedom to truly flex capacity externally, thereby limiting accountability on internal foundry."

Read also: Opinion: Intel confirms it will be a long slog for its foundry business

Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and a $33 price target, said the event "ultimately lacked the meaningful customer announcements" and that many were hoping Intel would use the event to name a meaningful IFS customer, like Nvidia, but to no avail.

Of the 41 analysts who cover Intel, seven have buy-grade ratings, 28 have hold ratings, and six have sell ratings, along with an average price target of $32.87, according to FactSet data.

As of Wednesday's close, Intel shares are up 24.5% year to date, compared with a 2.4% gain by the Dow Jones Industrial Average , a 40.2% surge by the PHLX Semiconductor Index , a 13.7% advance by the S&P 500 index and a 29% rally by the tech-heavy Nasdaq Composite Index .

-Wallace Witkowski

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06-22-23 0757ET

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