Why The Best Outcome For Intel Shareholders Is To Break Up The Chipmaker

Intel Corporation INTC, though retaining the pole position in many of the segments it operates in, has lost the aura of invincibility around it. An analyst at Northland Capital Markets is of the view the company is better off splitting its business units.

The Intel Analyst: Gus Richard upgraded Intel from Underperform from Market Perform and maintained the price target at $46.

The Intel Thesis: Intel shares are down about 27% year-to-date, and much of the company's troubles are already priced in, Richard said in a note.

The chipmaker's struggles stem from miss-execution in manufacturing, a broken design environment, failure in the mobile market, and the inability to enter the foundry market.

This has left the company a subscale integrated device manufacturer, with increasingly uncompetitive products in terms of performance relative to Advanced Micro Devices, Inc. AMD. It also lags ARM in terms of power consumption and cost in its core markets.

It's time Intel toes in line with other leading-edge logic companies that have fab-light strategy, ultimately becoming fabless: "We believe the best outcome for shareholders is to break up the Company," Richard wrote in the note.

If Intel continues on its current trajectory, it will continue to lose market share and underperform, he said.

Related Link: How Large Option Traders Are Playing Intel Following Earnings Sell-Off

Northland suggests the breakup of Intel along the following lines:

  • Altera, valued at $21B
  • Moblieye at $30 billion
  • NAND at $9 billion
  • fabless product company, comprising Client Computing Group, Data Center Group and IoT, at $90B
  • Manufacturing assets less NAND at $50 billion
  • NAND flash $9 billion
  • Intel Capital at $6.4 billion.

This yields a breakup value of $206 billion or $6 billion above INTC's current enterprise value.

"We believe each of these new companies has the potential to thrive as they would fit far better into the modern semiconductor ecosystem," the firm said.

At last check, Intel shares traded around $44.64.

Posted In: Gus RichardNorthland Capital marketsAnalyst ColorUpgradesTop StoriesAnalyst RatingsTech

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.