During its "Intel Unleashed" event that took place on Tuesday, Intel (INTC) announced that it will spend $20B to build two new chip factories in Arizona and said it will act as a "foundry," or manufacturing partner, for other chip companies that focus on semiconductor design but need a company to make the chips. Additionally, Intel said it expects to exceed earlier guidance for first quarter revenue and earnings. While several Wall Street analysts raised their price targets on the stock following the news, Barclays analyst Blayne Curtis called the guidance "very disappointing" and both Citi analyst Christopher Danely and Northland analyst Gus Richard said they see low probability of success for the company's foundry initiative.
INTEL UNLEASHED: During the company's global "Intel Unleashed: Engineering the Future" webcast, CEO Pat Gelsinger shared his vision for "IDM 2.0," which he calls "a major evolution of Intel's integrated device manufacturing, IDM, model." Gelsinger announced significant manufacturing expansion plans, starting with an estimated $20B investment to build two new factories, or "fabs," in Arizona. He also announced Intel's plans to become a major provider of foundry capacity in the U.S. and Europe to serve customers globally.
Intel said it sees fiscal year 2021 earnings per share of $4.55, below the consensus forecast of $4.76, and fiscal year 2021 revenue of $72B, with consensus at $72.86B. The company added that it "expects to exceed its previously communicated first quarter 2021 non-GAAP revenue and earnings-per-share guidance, driven by continued strong notebook demand." For the full year, Intel expects continued strong PC demand with double-digit PC total addressable market percentage growth. Intel client CPU supply is also expected to be up double-digits year-over-year. However, PC revenue will be "tempered by the industry-wide shortage of critical third-party components, such as substrates, which the company is working with its supply chain partners to mitigate. Intel's full-year business outlook also reflects entity list uncertainty," the company said.
BULLISH FRESH PICK: Following the event, Baird analyst Tristan Gerra designated Intel as a bullish Fresh Pick as he believes the company has tremendous potential internally that can be monetized and unlocked over time. The analyst noted the company plans to go back to its core manufacturing expertise both for internal production and foundry services. Gerra reiterated and Outperform rating and a price target of $85 on the shares.
TARGETS UPPED: Needham analyst N. Quinn Bolton raised the firm's price target on Intel to $74 from $70, while keeping a Buy rating on the shares after the company updated its guidance and announced a $20B plan to build two new foundries in Arizona for internal manufacturing. The analyst is positive on Intel's ability to identify weaknesses in its processor roadmap and "re-establish its processor performance leadership", adding that the company is looking to protect its share in data center business from AMD (AMD) by competing more on price while regaining its technological leadership with 7nm.
Mizuho analyst Vijay Rakesh also raised the firm's price target on Intel to $72 from $70 and kept a Buy rating on the shares. New CEO Pat Gelsinger provided "sweeping changes" to Intel's roadmap on Tuesday, Rakesh told investors in a research note. The "big announcement" of foundry strategy includes two new foundry fabs in Arizona now and Europe in the future with an incremental $100B addressable market, the analyst noted. He believes the new fabs should also be positive for Applied Materials (AMAT) and Lam Research (LRCX).
Keeping an In Line rating on the shares, Evercore ISI analyst C.J. Muse raised his price target on Intel to $75 from $68. While CEO Pat Gelsinger sees maintaining internal manufacturing as a key competitive advantage and suggested plans to invest in its businesses with or without government support, "it is crystal clear to us that support is on the come," Muse told investors. The analyst believes there "will be many questions whether Intel can be successful as a foundry given failure in the past," but the IBM (IBM) R&D announcement along with potential customers mentioned - including Qualcomm (QCOM), Microsoft (MSFT) and Apple (AAPL) - suggest "this is a much more serious endeavor under current leadership."
Meanwhile, Roth Capital analyst Suji Desilva raised the firm's price target on Intel to $65 from $60, keeping a Neutral rating on the shares. The analyst is "encouraged" that Intel's new CEO is committed to company manufacturing leadership and investment. Further, Desilva believes a flexible hybrid fab-foundry supply model and newly formed foundry service business unit will serve the company well. Wells Fargo, Truist, and Jefferies also raised their price target on Intel shares, while maintaining Neutral-equivalent ratings on the stock.
'DISAPPOINTING' GUIDANCE: Barclays analyst Blayne Curtis keeps an Underweight rating on Intel with a $58 price target following the company's "Unleashed" event. There was very little in terms of new product details while the fiscal year guidance was "very disappointing" as revenue was below estimates despite the "hot" PC market, Curtis told investors in a research note titled "Seen this Foundry Pitch Before."
FOUNDRY BUSINESS SEEN WITH 'ALMOST NO CHANCE' OF SUCCEEDING: Commenting on the news, Citi analyst Christopher Danely told investors in a research note of his own that he believes there is almost no chance of the foundry business succeeding since Intel needs foundry people to run a foundry business, and they are not doing that. He removed the "positive Catalyst Watch" on the shares and said he believes "near-term sentiment has peaked." Danely reiterated a Neutral rating on Intel with a $65 price target on the shares.
Voicing a similar opinion, Northland analyst Gus Richard raised the firm's price target on Intel to $48 from $46 but kept an Underperform rating on the shares. The analyst noted that the company laid out its come-back strategy, which he describes as "going omni-manufacturing" but pursuing internal manufacturing, out-sourcing to foundries and becoming a foundry itself. Richard contended that Intel is "three years behind" TSMC (TSM) in manufacturing and he doesn't expect the company to catch up. Further, the analyst thinks the foundry initiative has "a low probability of success as the foundry train has left the station."
Meanwhile, Rosenblatt analyst Hans Mosesmann reiterated a Sell rating and $40 price target on Intel shares, telling investors in a research note that fixing Intel's structural problems is quite the tall order as it is and that attempting to enter the foundry services industry adds another dimension of execution risk and makes the challenge "incredibly complex." Intel has no foundry services expertise and feels Intel's corporate culture is just not set up for the services' aspect of the foundry business, Mosesmann argued.
PRICE ACTION: In afternoon trading, shares of Intel are fractionally down at $63.19.
"Street Fight" is The Fly's recurring series of exclusive stories that highlight a stock or sector that is in focus amid divergent views from Wall Street analysts.
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