Is it difficult for Intel to stand alone in the short term, and can splitting it up not save it?

In the fierce competition in the global semiconductor industry, Intel, which is in a dilemma, sees "spin-off" as a new lifeline. However, Bernstein pointed out that the challenges Intel currently faces may not be easily resolved by simply spinning off or selling parts of its business.

Last week, according to Bloomberg, Intel has hired advisors to help them explore future strategic options, which may include splitting its product and manufacturing businesses, canceling projects, or engaging in mergers and acquisitions.

On September 3, Bernstein analysts Stacy A. Rasgon and Akhilesh Kumawat released a report stating that currently, whether as a whole or split, neither the foundry nor product business seems to be very attractive.

Currently, its foundry business (IFS) is heavily dependent on Intel, and its product business is also structurally losing market share in the potentially long-term shrinking x86 CPU market. Analysts point out that unless Intel can attract a large number of third-party businesses, the spin-off does not make much sense.

Under the profit crisis, spinning off businesses may be difficult to sustain

From a data perspective, the extent of Intel's "collapse" is staggering. The report points out that the company's revenue in 2024 may be nearly $40 billion lower than the target set at the 2022 analyst conference, with profit margins far below expectations, almost zero earnings, and may consume about $15 billion in cash this year, far from the breakeven point expected by management.

Although some voices in the market believe that spinning off companies can "create value for shareholders," analysts are skeptical of this.

Currently, Intel is preparing for the spin-off, but specifically, its foundry business (IFS) is currently heavily dependent on Intel, and its manufacturing department is difficult to operate independently due to severe losses and insufficient scale.

Analysts believe:

"Unless Intel can attract a large number of third-party businesses, the spin-off does not make much sense, and this seems to take several years (if possible)."

Earlier, analysts at Morgan Stanley also pointed out that in terms of the foundry business, due to its dependence on the ability to provide funds for expensive cutting-edge research and production capacity, Intel's prospects in this business are unclear.

Furthermore, Intel's product business is also structurally losing market share, especially in the potentially long-term shrinking x86 CPU market. As for simply divesting the fabs, analysts believe "this is also challenging":

"Although theoretically abandoning chip manufacturing plants may make sense (according to the current development path, they can be said to have a negative net present value for Intel), this would still require Intel to abandon its roadmap and fully outsource."

"So" cash-strapped, caught in a dilemma

The report also mentioned that Intel may be considering accelerating the spin-off of Altera to raise cash and may suspend its project in Germany. Intel originally planned to eventually take Altera public, but now it seems they may be looking for a faster way to sell. At the same time, Intel may further reduce its stake in Mobileye It is worth noting that Intel has previously announced cost-cutting measures, reduced capital expenditures, suspended dividends, subsidies, etc., which should have brought about approximately $40 billion in incremental revenue to the balance sheet by the end of 2025, but the company seems to be raising more cash by selling assets.

Analysts believe that although the overall strategy may have made sense initially, the current development path of the business seems insufficient to support it to the end, and they may have gone too far to stop.

Bernstein ultimately rates Intel as "market perform" with a target price of $25. At the close, Intel was trading at $19.4 per share, down 0.15%.