Although badly injured,
isn’t dead yet. And at least one analyst thinks the beleaguered chip company’s stock could be worth significantly more than Wall Street generally thinks.
Let’s be clear: the situation is bleak. Intel (ticker: INTC) released one of the company’s worst quarterly reports ever last week, along with hugely disappointing guidance. Intel is suffering the effects of slower PC sales (which many expected), weaker demand from data center customers (which was an unpleasant surprise), and continued market share loss to compete
“This quarter’s results were below the standards we set for the company and our shareholders,” said Intel CEO Pat Gelsinger. “We must and will do better. The sudden and rapid decline in economic activity has been the main driver, but the deficit also reflects our own implementation difficulties.”
Intel posted revenue of $15.3 billion in June, with adjusted earnings of 29 cents per share; Street consensus had asked for $17.9 billion and 69 cents. For the September quarter, the company forecast revenue of $15 billion to $16 billion, well below the consensus of $18.7 billion. Bernstein’s chip analyst Stacey Rasgon called the Intel report “the worst” he’s ever seen.
Meanwhile, the company has committed about $100 billion in spending to build out new chip manufacturing capacity in Arizona, Ohio and Europe in an effort to compete more directly with
(TSM) as a contract chip manufacturer. It’s a bet that will take years to pay off, and involves no small amount of risk.
Once by far the most valued US chip company, Intel’s $151 billion market cap is now surpassed by AMD by $155 billion.
(TXN) at $162 billion,
(AVGO) at $216 billion, and
(NVDA) at $457 billion.
Northland Securities analyst Gus Richard takes the opposite view, claiming in a research note Monday that Intel stocks are now trading well below the split value. He maintains an Outperform rating for Intel stocks, with a price target of $55, implying a potential return of over 50% from recent levels.
Intel closed 1.8% higher to $36.86 on Monday.
Richard sums up Intel’s parts, and it starts with the idea that the company’s manufacturing assets have “significant strategic value” for the US, given the country’s massive reliance on Taiwan-based chip makers, and that those chips are fabs. “will persevere one way or another.” If Intel continues to stumble, he says, Intel could be worth $235 billion in a break-up scenario. (Which matches its target price of $55.)
In an odd twist, the looming threat to Taiwanese sovereignty from mainland China could be the biggest reason to stay long in Intel stock.
He claims that the risk of China blocking or invading Taiwan sometime in the next five years “makes Intel a strategic asset” to the US Department of Defense. He estimates that Intel’s properties, plants and equipment — the chip factories and their existing chip-making tools — are worth $71 billion, which is their book value on Intel’s balance sheet.
He goes on to theorize that the Intel factories could be spun off as a separate company.
“Given the strategic value, we would expect the US and other countries to help fund Intel production and Intel products could fill the fabs at separation,” he writes. “Intel’s production assets could also be merged with Global Foundries (GFS),” a contract chip maker that actually grew out of AMD. He estimates the combined company would have annual sales of $26 billion, or about half the size of market leader Taiwan Semiconductor (TSM).
Richard also estimates that Intel’s product portfolio — which includes chips for PCs, data centers, networks and graphics — is worth at least twice its projected revenue of $61 billion in 2022, or $122 billion.
That ignores two things: the company’s Mobileye autonomous drive unit and Altera, which makes a class of chips known as FPGAs, or field-programmable gate arrays. Mobileye is planning an IPO as soon as this year, and Intel has said it plans to aim for a $50 billion valuation; Taking a conservative approach, Richard estimates Mobileye’s market value at $30 billion.
For Altera, he applies a valuation similar to that of its main rival Xilinx, which was recently acquired by AMD, and adds another $12 billion.
Richard concludes, “With no-risk estimates, strong valuation support and a 4% dividend, we see little downside risk and a lot of profit even if Intel doesn’t perform.”
Write to Eric J. Savitz at [email protected]