Title: Qualcomm's Potential Takeover of Intel Dismissed by Citi Analysts - What Does This Mean for Investors?
In a recent report by The Wall Street Journal, it was revealed that Qualcomm had approached Intel regarding a possible takeover. However, Citi analysts have swiftly dismissed this idea, deeming it "almost too silly to comment on."
According to Citi, an acquisition by Qualcomm would not be in the best interest of Intel shareholders. They point out Qualcomm's lack of experience in operating fabs and their historically high operating expenses as major concerns.
Instead, analysts suggest that Intel should focus on exiting the foundry business, a move they believe would benefit shareholders the most. Citi estimates that the foundry business incurred a loss of $2.8 billion in the last quarter and is projected to lose around $8 billion annually. They believe that this sector has slim chances of turning profitable.
Exiting the foundry business could potentially boost Intel's earnings per share (EPS) to between $3.00 and $4.00, while also increasing gross margins to the low-to-mid 50% range, according to Citi.
While Citi recommends Intel to part ways with its foundry division, they advise the company to retain its CPU manufacturing operations. The firm stresses the synergies between CPU design and manufacturing and believes that Intel should not go fabless, as they predict Intel will catch up with TSMC by 2025.
Citi has reiterated its Neutral rating on Intel, with a price target of $25. They anticipate that Intel's EPS will face pressure due to its foundry business, which they believe has minimal chances of success.
In conclusion, Citi's analysis suggests that Intel should steer clear of a potential takeover by Qualcomm and instead focus on exiting the foundry business. This strategic move could lead to an increase in earnings per share and gross margins for Intel, ultimately benefiting its shareholders.