Is Now the Moment to Capitalize on Intel's Potential Breakup?

According to Bloomberg, insiders revealed that Intel is discussing future options with a group of investment bank advisors. Such discussions were somewhat expected. Earlier this month, Intel announced a very poor financial report, causing the stock price to plummet by nearly 30%. The financial report not only missed expectations on both top and bottom lines but also announced layoffs of more than 15% and a halt to dividend payments to strengthen cash flow. Wall Street was pessimistic about Intel's future at that time. The company's traditional CPU business faces fierce competition, leading to a decrease in market share, and its AI chips have not shown much progress. On the other hand, in the chip manufacturing industry, despite receiving a lot of government subsidies, it still cannot compete with TSMC.

Additionally, last week, an important director of the company, Tan Lifu, also announced his departure, further intensifying the company's turmoil. Tan is a senior semiconductor industry professional with extensive industry and technical experience. Although the official reason for leaving was personal, Reuters found that Tan was frustrated with Intel's redundant workforce, a culture that is afraid to take risks, and a lagging AI strategy. Two years ago, Tan joined the board of directors in an attempt to reverse Intel's downturn. In October last year, his responsibilities expanded to oversee the chip manufacturing industry. However, he left shortly after. As a result, many people speculated whether this means Tan saw little hope for turning things around.

So the company's future is not very clear, and it urgently needs a new way out. Hence, today's news.

It is reported that one of the options Intel is evaluating includes splitting its chip design and chip manufacturing. This news is very positive for investors and is also the reason for today's stock price surge. In addition, the company also needs to assess which factory projects may have to be abandoned. Goldman Sachs and Morgan Stanley, as long-term advisors to Intel, are preparing several feasible options and are expected to present them to the board of directors in September.

He has always believed that the chip manufacturing business is the key to the company's return to glory and wants to compete with TSMC in the future. However, the result of the split would likely declare the vision of saving the chip manufacturing business a complete failure. But the discussions are still in the early stages, and the company may not have to go that far yet, possibly stopping some expansion plans first, such as Intel significantly reducing capital expenditures in the next year. The chip manufacturing business is losing money while still expanding blindly, which is almost like burning money.

The split is definitely a good thing for Intel, there is no doubt about that. But can it fundamentally change its investment value? I am very skeptical. Intel's problems have a long history and cannot be changed overnight. First, we have to wait until after September when the board of directors determines the direction to know whether to split or not. Even if it splits, the company's situation will not change fundamentally; the competition in CPUs is still fierce, and the company is still lagging in AI. After the split, it is likely that Intel will need a new CEO to lead the company, which also increases the uncertainty of the management. The new CEO will have to think about how to deal with the downturn in traditional businesses and how to catch up with NVIDIA and AMD. All of these will take a lot of time. So before these issues are clarified, Intel will not be a good investment target.