Text size
Intel cut its dividend by two-thirds last month.
David Paul Morris/Bloomberg
Intel’s plan to turn itself around by building up its third-party chip-manufacturing business for other semiconductor companies faces serious obstacles, BofA Global Research says.
On Sunday, analyst Vivek Arya reiterated an Underperform rating for
Intel
stock (ticker: INTC), with a target of $25 for the price.
A “structural challenge remains [with] INTC’s insistence on a capex intensive integrated design/manufacturing model (IDM) that is forcing it to simultaneously compete against agile rivals,” he wrote. “Meanwhile the competition with ARM-based PC/server rivals is just starting.”
Intel declined to comment. In early trading Monday, the stock was down 1% to $26.15., while the
S&P 500
was 0.6% higher.
The analyst noted
Apple
(AAPL) has been gaining share, reaching about 10% of the PC market using its own internally designed chips. Apple processors use Arm Ltd. chip-architecture technology, a competitor to the x86 chip architecture used by Intel and Advanced Micro Devices (AMD).
He also said Intel faces severe challenges in catching up to other players in the third-party chip-manufacturing business. He said that
Intel Foundry Services
has less than 1% of the global foundry market, compared with 57% for
Taiwan Semiconductor Manufacturing
.
An additional challenge, he said, is that other chip makers could be worried that Intel’s own chips would receive preferential manufacturing treatment.
“IFS [Intel Foundry Services] is not only behind in technology (vs. TSMC/
Samsung
), but also too sub-scale,” the analyst wrote.
Last month, Intel announced a 66% dividend cut, reducing the quarterly payout to 12.5 cents per share from 36.5 cents, citing the need for more financial flexibility to execute its turnaround plans.
Intel stock has fallen by 45% over the past 12 months, compared with a 6% drop for the iShares Semiconductor (SOXX) exchange-traded fund, which tracks the performance of the ICE Semiconductor Index.
Write to Tae Kim at [email protected]