A Citigroup analyst is downgrading Intel (INTC) despite rival chipmaker Nvidia (NVDA) taking a $5 billion stake in the struggling company.
In a new interview with CNBC Television, Christopher Danely, Citi’s semiconductor analyst, says that the biggest concern for Intel is how its “money-losing” foundry, which makes chips for other companies, continues to hinder the firm’s earnings power.
The deal announced between the two chipmakers on Thursday did not include any foundry commitments.
Citi has downgraded Intel from neutral to sell.
“Obviously, if the stock goes down, I’d go back to neutral. That’s number one.
Number two is, I want to make two important clarifications. Intel does foundry for their own processors, and we definitely think they should stick with that. They’ve managed to make a lot of progress there over the last two to three years. But it’s this making chips for other companies, especially for leading-edge. They’ve been trying to do this for 10, 20 years. They are no closer now than they were five years ago, 10 years ago, 15 years ago. They’re still two to three years behind Taiwan’s semi (semiconductor industry). They’re losing billions of dollars in this.”
Danely also says that Intel is failing to take measures that could improve the foundry part of the company, while suggesting the chipmaker should instead focus exclusively on what made it successful initially.
“Yes, it’s possible that they could do it, and we’ve outlined that. First of all, you probably want to hire like two to three Michael Jordans from Taiwan semi to come teach you how to do the foundry business. Intel has not done that. They have like a non-foundry person running the business. And the foundry business is almost antithetical to what made Intel great. What made Intel great was manufacturing their own chips. It’s a single processor for Intel. It’s not taking somebody else’s recipe and making it yourself. You just have to completely turn the company around. We just think that’s not their forte. “
INTC shares closed Friday at $29.58, down more than 3% on the day. Meanwhile, NVDA shares are trading for $176.67 at the close of the market on Friday, up marginally in the last 24 hours.
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