Investing.com -- Raymond James analysts said in a note Tuesday that separating Intel’s Product and Foundry businesses is the most effective way to unlock shareholder value.
“In our view, splitting Intel (NASDAQ:INTC) Product and Foundry is the key to unlocking value,” the analysts wrote, citing speculation that Broadcom (NASDAQ:AVGO) considered acquiring Intel’s Product business, contingent on finding a partner for Intel Foundry.
While a potential merger and acquisition (M&A) deal could create additional value, it would likely face regulatory challenges in China, according to the firm.
Raymond (NSE:RYMD) James suggests an alternative path: “The scenario that presents the best outcome for most parties (if not all) is one where U.S. Fabless companies take an equity stake in Intel Foundry, commit some wafer volumes, and spin it off into a separate unit.”
They explain that under this model, Intel Product could trade at a low-teens price-to-earnings (P/E) ratio, implying a valuation of $135-140 billion.
The analysts also see further upside if Broadcom were to acquire the unit. However, success hinges on Intel’s 18A process, with its performance and manufacturing yield playing a crucial role in attracting investment.
Broadcom CEO Hock Tan has previously expressed interest in acquiring “franchises” like Intel, but regulatory approval remains a key hurdle.
“Any deal will have to be blessed by the U.S. government with assurances of help on the regulatory front,” Raymond James noted. If a deal is reached, Broadcom is expected to cut costs, raise prices, and improve Intel Product’s operating margins.
Meanwhile, TSMC is unlikely to take over Intel’s fabs, as the company would likely prefer expanding its U.S. manufacturing footprint. Raymond James also sees semiconductor capital equipment companies (SemiCaps) as beneficiaries, particularly if U.S. policymakers ease export controls on chipmaking tools to secure China’s approval for any deal.