A recent report from The Wall Street Journal suggested that Qualcomm (NASDAQ:QCOM) had approached Intel (NASDAQ:INTC) about a potential acquisition, but Citi analysts quickly dismissed the notion, labeling it as implausible and counterproductive for Intel shareholders.
Citi analysts argue that such a takeover would be problematic due to Qualcomm’s inexperience with operating semiconductor fabs and its historically high operating expenses. Instead, they believe Intel should prioritize divesting its foundry business, which has been a significant financial burden.
According to Citi, Intel’s foundry division posted a $2.8 billion loss last quarter and is on track to lose approximately $8 billion annually. They argue that the foundry business has limited potential for profitability and exiting the sector could significantly improve Intel’s financial performance. Citi estimates that abandoning the foundry operations could boost Intel’s EPS to between $3.00 and $4.00, while gross margins could rise to the low-to-mid 50% range.
However, Citi recommends that Intel retain its CPU manufacturing business, citing the synergies between CPU design and manufacturing. The analysts believe Intel should not transition to a fabless model, as they expect the company to catch up with TSMC’s technology by 2025. The firm concluded that Intel’s EPS will remain under pressure as long as the company continues to operate its struggling foundry business, which Citi believes has little chance of becoming a successful venture.