Dangerous signal! Bank of America warns: Intel's low market share in chip foundry may reduce company value, lowers target price to $44

According to the Zhitong Finance and Economics APP, a research report released by Bank of America stated that the future of Intel (INTC.US) largely depends on the vision of the company's CEO Pat Gelsinger, which is to transform this chip giant into a semiconductor foundry and compete with TSMC (TSM.US) and other companies in the industry.

The bank stated that while the foundry division has achieved some success in external design, it still "completely relies" on Intel's internal design team, which diminishes the overall value of the company.

Analyst Vivek Arya wrote in a report to clients, "Fundamentally, we emphasize the upcoming PC cycle growth (along with incremental AI PC gains from Apple M4 and Win10 updates), as well as the improvement in foundry scale/profitability, which is positive, especially considering that PCs still account for 50-60% of Intel's revenue. However, the profit growth potential in the current market continues to shift towards accelerated computing (XPU and network relative to traditional CPUs), and the emergence of other leading US foundries (TSMC and Samsung respectively receiving $6-7 billion subsidies in the "Chip Act") remains concerning."

Currently, Arya has a target price of $44 for Intel, lower than his previous $50, which includes his partial valuation of Intel's products and foundry business, plus its stake in Mobileye (MBLY.US) and its programmable chip division (formerly Altera). He reiterated a "neutral" rating on the stock.

Intel recently disclosed that its foundry business had revenue of $18.9 billion in 2023, but an operating loss of $7 billion, higher than the $5.2 billion loss in 2022.

Gloomy Outlook

Intel lags behind its peers in most aspects of its business, including the crucial data center field, where companies like NVIDIA (NVDA.US) have already seized market share with GPUs used for artificial intelligence.

Arya stated that despite Intel's efforts to catch up - recently announcing its Gaudi3 accelerator - the new products are not expected to make an impact.

Regarding the new accelerator, Arya said, "We expect initial traction to be modest, with market share below 1%, i.e., less than $1 billion." The chip is planned for release in the second quarter, with costs significantly lower than NVIDIA's H100 product.

Furthermore, other chip foundry companies, especially TSMC and Samsung, are rapidly rising in the US given their strength in cutting-edge nodes and recent support from the Biden administration.

It is reported that TSMC recently received a $6.6 billion subsidy (and $5 billion loan) to promote the manufacturing of advanced semiconductors domestically in the US, while Samsung is expected to receive $6-7 billion in subsidies in the short term Intel, on the other hand, received nearly $20 billion in subsidies and loans from the "Chip Act," including $8.5 billion in subsidies to promote chip production in the United States.

Arya stated that although TSMC's wafer fabs in the United States are considered to be one to two years behind the company's fabs in Taiwan, their overall strength and capacity are "generally" comparable to Intel.

Arya mentioned that potential positive catalysts for Intel include the continued recovery of the PC market, updates to Windows 10, AI-focused personal computers, improvements in foundry profitability, and an increase in new customers