Investing.com– Intel Corporation (NASDAQ: ) could see short-term gains from exiting the foundry business, but now faces risks to long-term value due to Pat Gelsinger’s resignation as CEO, Citi analysts said in a note.
Citi analysts said it would be “in the best interests of Intel shareholders” for the company to stop trying to become a commercial foundry and sell off the business. The brokerage sees higher odds for this scenario, given that Gelsinger has championed the ailing foundry unit.
But Citi also noted that Gelsinger has been a driving force behind improvements in Intel’s overall output and that the company could face “long-term sickness” if the new CEO doesn’t share his technical expertise.
Intel said Monday that CEO Gelsinger will resign and be replaced by David Zinsner and Michelle Holthaus as interim CEOs. The chip maker’s shares, which have halved their value so far in 2024, fell slightly after the announcement.
The chipmaker has lagged far behind rivals such as TSMC (NYSE: ) and NVIDIA Corporation (NASDAQ: ) in making high-end silicon, and its shortcomings have become more apparent in the past two years amid increased interest in artificial intelligence. The company has largely failed to capitalize on the AI-driven surge in chip demand.
Gelsinger’s departure came less than four years into his tenure, as the board lost faith in his plan to turn around the struggling chipmaker.
Gelsinger recently outlined plans to spin off the foundry, which has been steadily losing money. But the recent $7.86 billion in government subsidies the company received came with the caveat that Intel can sell only a limited stake in its foundry.
Citi analysts said Intel has little chance of success in the foundry business and that gross margins could improve significantly if the unit is sold.
The brokerage has a Neutral rating on the stock with a $22.0 price target.
