Where will Intel stock be in 5 years?

Shares of the electronic chip giant Intel (NASDAQ:INTC) have been in the doldrums for several years. The company is losing market share to its rival AMDand its multi-year plan to become one of the world’s largest foundries is still in its early stages and has yet to bear financial fruit. Add to that a deep downturn in the PC market that has devastated the company’s profits, and it’s no surprise that Intel’s stock has taken a hit.

While it may seem difficult to be optimistic about Intel’s prospects, the company has the potential to look very different in five years.

The Path to Foundry Profits

There are two things investors need to know about Intel as it navigates a rapidly changing semiconductor industry over the next five years.

First, the company has decoupled its product business from its manufacturing operations. Manufacturing is now a separate entity within Intel with its own income statement, and the teams that design PC processors, server processors, and other internal chips have some freedom to choose the manufacturing process and supplier that works best for them.

In the past, a manufacturing delay could also lead to production delays, as products were closely tied to the manufacturing side of the business. Issues with Intel’s 10nm process, which was delayed for years after a planned launch in 2016, led to delays in the launch of various PC and server processors. The manufacturing delays triggered a cascade of production delays, eventually opening the door for AMD and its outsourced manufacturing to steal significant share. market share.

Today, product teams are more independent. The most striking example of this change is Moon LakeIntel’s upcoming laptop processors promise incredible gains in efficiency and battery life. Lunar Lake will use a 3nm process TSMC for its main computing tile, something that would have been unthinkable five years ago.

Second, foundry profits can grow rapidly once the capabilities of advanced process nodes increase. The foundry segment posted an operating loss of nearly $2.5 billion in the first quarter alone, but that figure is misleading. Nearly all of Intel’s foundry revenue is currently internal, and the company has made massive investments in manufacturing that won’t start to pay off until the external business it has secured starts generating meaningful revenue.

Intel expects the foundry segment to reach breakeven around 2027. By 2030, Intel expects external foundry revenue to exceed $15 billion with an adjusted operating margin of 30%. This represents an operating profit of approximately $5 billion for the segment.

This plan is not far-fetched. Intel’s manufacturing assets will be used for much longer than in the past, when the company only made chips for itself. The Intel 18A process, which will be ready early next year, will be refined and will be used for many years as a long-life node. The economics of Intel’s manufacturing operations are undergoing a fundamental change.

It’s time to buy Intel…

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