Intel’s Long Game: Foundry Revenue Delayed, but Partnerships and Structure Shine
Intel Corp (INTC) has delivered on its promise of an update to its strategy, but the news might disappoint those seeking immediate gains. Intel confirmed that meaningful external foundry revenue isn’t anticipated until 2027, further pushing back its timeline for monetizing this crucial aspect of its business. However, promising developments such as expanded partnerships and a restructured foundry business offer glimmers of hope for the long-term future.
Key Takeaways:
- Foundry Revenue Delayed to 2027: Investors hoping for a quick turnaround in Intel’s foundry business will have to wait. Meaningful revenue ramp won’t occur until at least 2027.
- Partnerships Bolster Confidence: Intel’s collaboration with Amazon.com Inc (AMZN) to produce AI fabric chips, while not a high-profile venture, suggests a burgeoning partnership with the cloud giant.
- Capex Steady, Projects Delayed: Intel’s capital expenditure plans remain consistent, with $25-27 billion allocated for 2024 and $20-23 billion for 2025. However, certain projects, including those in Poland and Germany, have been delayed by approximately two years.
- Foundry Gets a Makeover: Intel is establishing its foundry business as an independent subsidiary to enhance transparency and efficiency. This move could potentially pave the way for a future spin-off, further unlocking value for investors.
Foundry Revenue? Come Back in 2027
While Intel’s ambition to become a leading foundry player remains strong, the realization of that goal will be a long-term endeavor. Intel’s latest update suggests that the company anticipates "meaningful 18A external foundry revenues not till 2027." This timeline is far from ideal for investors seeking short-term gains, but it’s crucial to understand that Intel is playing the long game, focusing on establishing its foundry infrastructure and securing partnerships.
Strategic Partnerships: A Key to Future Growth
Despite the delayed revenue stream, Intel’s partnerships are a valuable asset to its growth strategy. The collaboration with Amazon Web Services (AWS), while not centered on high-profile AI accelerator chips, represents a strategic move to provide custom Xeon 6 chips on Intel’s 3 process technology. Analyst Harlan Sur notes that "customer engagement is improving," suggesting that these partnerships will contribute to a brighter future for Intel’s foundry operations.
Capex Cuts, Project Delays: Walking a Tightrope
Intel’s capex plans for 2024 and 2025 remain stable at $25-27 billion and $20-23 billion respectively. However, the company is strategically adjusting its timeline for some projects, primarily in Europe. Projects in Poland and Germany have been delayed by approximately two years, while the advanced packaging plant in Malaysia is also being delayed to better align with market demand. While this might seem like a negative development, it underscores Intel’s focus on ensuring that its investment aligns with market realities.
The US Projects Remain On-Track
Despite adjustments to some international projects, key investments in the United States remain on schedule. Projects in Arizona, New Mexico, and Ohio are still advancing as planned, demonstrating Intel’s commitment to its domestic operations.
A New Era for Intel’s Foundry
One of the most significant developments in Intel’s update is the decision to establish its Foundry business as an independent subsidiary. This move is intended to enhance transparency and efficiency in this burgeoning sector. The subsidiary will have its own operating board with independent directors, suggesting potential for more autonomy and flexibility in the future.
Spin-Off Potential: A Future Option
While Intel’s immediate focus is on strengthening the Foundry business, the establishment of a separate subsidiary could pave the way for a potential spin-off in the future. This move, though not explicitly stated, could unlock significant value for investors by allowing them to invest more directly in Intel’s fast-growing foundry segment.
Intel’s Long Game: A Wait-and-See Situation
In conclusion, Intel’s recent update underscores its commitment to playing the long game in the foundry sector. While the delay in external foundry revenue might disappoint those looking for immediate gains, the strategic partnerships being developed and the structural changes being implemented offer a promising outlook. Patience will be crucial for investors, as Intel’s path to success is likely to be gradual. However, the long-term potential of Intel’s foundry business, coupled with its strategic moves, makes this story worth watching for those with a long-term investment perspective.
