Intel (NASDAQ:INTC) was in focus on Thursday as Seaport Global Research upgraded the beleaguered semiconductor company, citing recent investments from external companies and “stop-gap solutions.”
Shares rose 1.7% in premarket trading after it was reported that Intel had approached Apple (AAPL) about potentially investing in the company.
“We think Intel is on the wrong path with a shrinking window to save their fabs,” Seaport analyst Jay Goldberg wrote in a note to clients. “That being said, in the near term, the stock is likely to be driven by follow-on investments and the potential for a stop-gap solution for the fabs. We are upgrading to Neutral (from Sell) on those near-term factors, but remain cautious on the company’s longer-term fundamentals.”
Intel’s board of directors is likely looking for a way to shed its fab business, Goldberg said, as at this point, it will take a “multi-year, deeply complex, painful process” to turn the business around. He believes this is short-sighted, as a world five years from now will be “very difficult” for the semiconductor ecosystem without an Intel foundry operation, as Taiwan Semiconductor (TSM) could raise wafer prices significantly on its N2 process.
“We think it is likely that other potential Intel customers will follow the path of Softbank, Nvidia and the US government and invest directly in Intel stock, which would drive up the price,” Goldberg explained. “We see potential outside strategic investors could include some combination of Amazon, Apple, Google, Microsoft, and others.”
And with the U.S. federal government invested in Intel, that makes the situation even more complicated, Goldberg said. The Trump administration wants to develop its advanced semiconductor manufacturing capabilities, but it also wants to see a return on its investment.
One potential solution would be for Taiwan Semi to buy Intel’s foundry business and make a commitment to do something in the U.S., Goldberg said, an idea that has been posited by others.
“We think it is unlikely that TSMC would relocate core R&D to the US, but could easily make smaller initiatives that satisfy immediate political concerns,” Goldberg wrote. “For their part, we believe TSMC really does not want to own Intel’s fabs, but press reports indicate it is under political pressure to provide some kind of deal. Again, this would help Intel stock in the near term, without curing the fundamental issues.”