A report from The Wall Street Journal last week claimed that Qualcomm (NASDAQ:QCOM) had approached Intel (NASDAQ:INTC) about a potential takeover, but Citi analysts have dismissed the idea, calling it “almost too silly to comment on.”
According to Citi, such a move would be detrimental to Intel shareholders, citing Qualcomm’s lack of experience in operating fabs and its historically high operating expenses.
Analysts argue that Intel should instead focus on exiting the foundry business, a move they believe is in the best interest of shareholders.
The foundry business, which Citi estimates lost $2.8 billion last quarter and is projected to lose around $8 billion annually, has slim chances of becoming a profitable operation, according to the investment bank.
They believe exiting this sector could boost Intel’s earnings per share (EPS) to between $3.00 and $4.00, while raising gross margins to the low-to-mid 50% range.
While Citi acknowledges that Intel should part ways with its foundry division, the firm recommends that Intel retain its CPU manufacturing operations.
“We believe Intel should keep its CPU manufacturing business given synergies with CPU design and do not believe Intel should go fabless since Intel should catch up with TSMC in 2025,” writes the bank.
Citi reiterated its Neutral rating on Intel, with Intel’s price target set at $25.
“We expect Intel’s EPS to be under pressure given its foundry business, which we believe has minimal chance of succeeding,” concluded Citi.
