BofA Keeps Neutral on Intel, $25 Price Target

BofA Securities analyst Vivek Arya reiterated a Neutral rating and $25 price target on Intel (NASDAQ: INTC).

“On Monday, Intel announced it has entered into a definitive agreement to sell 51% of Altera – its programmable chip (FPGA) business – to Silver Lake, by 2H25.

Per INTC, the transaction values Altera at $8.75bn, about half the $16.7bn price INTC paid to purchase the business in 2015.

On a valuation perspective, it implies a 17x forward P/E off a more normalized sales/profitability run-rate (more below), a slight discount to prior 18-22x valuation in 2015 given its much lower market share today (23% vs.

38% in 2015), and a deep discount to closest pure-play FPGA vendor LSCC’s 30-40x (7% share today vs. 6% in 2015).

Overall, the transaction is in-line with CEO Lip-Bu Tan’s commitment to prioritize the core x86 business and should help both lines of businesses to focus on their own portfolio.

Particularly, Altera also appointed a new CEO, Raghib Hussain, whose prior experience as Marvell’s President of Products and Technologies and Cavium’s COO could help revitalize Altera’s product updates and competitiveness, fending off the ongoing share loss to LSCC in the mid-range.

For core Intel, the additional cash could help fund its continued investments in upcoming 18A/14A nodes as well as its 3-4+ year turnaround plan, likely coupled with further opex/capex cuts ahead as the new CEO resizes spending.

On the financial front though, the deal is likely dilutive to Intel’s l-t EPS given FPGA’s historical high-margin profile (INTC will deconsolidate ALTR’s financials upon close).

Overall, we view the transaction as an overall step toward the right direction for both core Intel and Altera.

However, we still maintain Neutral for INTC given increasing competitive threat in its core x86 CPU business, a lack of AI accelerator portfolio, and a lack of scale in its foundry business.

We also flag modest negative read-through for FPGA peer LSCC on competitive and valuation perspectives.”

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