Intel should exit foundry business, Citi says

Intel’s (NASDAQ:INTC) issues with its manufacturing, or foundry business, have become a red mark against the Pat Gelsinger-led company as it attempts to turn itself around. And while management has bet the company’s future on its foundry business, Citi believes it should get out while it still can.

“While in our view Intel manufacturing for CPUs is on track, we continue to believe it should exit the foundry business in the best interest of shareholders,” Citi analyst Christopher Danely said in a note to clients. Danely has a Neutral rating and $25 price target on Intel.

Speaking at Citi’s tech conference on Wednesday, Intel CFO David Zinsner said that the company is skipping its 20A manufacturing technology in favor of the more advanced 18A manufacturing process. Danely said this will save Intel another $500M in costs (Intel recently announced $10B in capex spending cuts and $4B in operating cost cuts), but it is still way behind industry leader Taiwan Semiconductor (NYSE:TSM), which builds chips for companies like Nvidia, Apple, AMD and others.

“We continue to expect Intel to reach manufacturing parity with TSMC during 1H25 for client CPUs, while management acknowledged that parity in the data center market may take a little longer,” Danely opined.

Zinsner said at the conference that it should see “meaningful” foundry revenue next year from its advanced packaging services, though it will not be until 2027 until it sees “meaningful” foundry wafer revenue. As such, the foundry business should dilute the company’s margins next year, Danely opined.