Intel should exit foundry; long-term value at risk with Gelsinger exit, Citi says

Investing.com– Intel Corporation (NASDAQ:INTC) could generate near-term gains by exiting its foundry business, but now faces risks to long-term value with the resignation of Pat Gelsinger as CEO, Citi analysts said in a note. 

Citi analysts said it would be “in the best interest of Intel shareholders” if the company ceases its attempts at being a merchant foundry and sells off the business. The brokerage sees a higher chance of this scenario, given that Gelsinger was a champion of the ailing foundry unit.

But Citi also noted that Gelsinger was a driving force of improving Intel’s overall manufacturing, and that the company could face “long term pain” if the new CEO did not share his technical expertise. 

Intel on Monday said CEO Gelsinger will resign and be replaced by David Zinsner and Michelle Holthaus as interim co-CEOS. Shares of the chipmaker, which have halved in value so far in 2024, fell slightly after the announcement.

The chipmaker has largely lagged rivals such as TSMC (NYSE:TSM) and NVIDIA Corporation (NASDAQ:NVDA) in rolling out cutting-edge silicon, with its shortcomings becoming even more apparent over the past two years amid increased interest in artificial intelligence. The firm largely failed to capitalize on an AI-induced spike in chip demand. 

Gelsinger’s exit came less than four years into his tenure, as the board lost faith in his plan to turn around the ailing chipmaker. 

Gelsinger had recently outlined plans to spin off the foundry business, which has been steadily losing cash. But a recent $7.86 billion government subsidy won by the company came with the caveat that Intel could sell only a limited stake in its foundry unit. 

Citi analysts said Intel had a slim chance of succeeding in the foundry business, and that gross margins could improve substantially if the unit is divested. 

The brokerage holds a Neutral rating on the stock with a price target of $22.0.