Intel Corporation (INTC) Foundry Strategy Could Unlock Value

Credit Suisse Equity Research analyst Randy Abrams maintains an Outperform rating for Intel Corporation (NASDAQ:INTC).

Intel Corporation (INTC) Foundry Strategy Could Unlock Value

Intel Corporation (NASDAQ:INTC) analyst day steps up push on foundry and mobile. Intel stepped up its challenge to TSMC by expanding its foundry strategy to target any customer and shift more investment to its smartphone and tablet roadmap.

Low cost products increasing competition

Intel Corporation (NASDAQ:INTC) foundry push broadens, but must overcome cost and ecosystem barriers. Intel’s CEO Brian Kryzanich is open to dialogue with any potential foundry customer including low-cost mobile, mobile SoC and FPGA/ASIC, opening the door to 60% of TSMC’s base. Intel pitched its technology as 3-4 years ahead, though foundry and mobile are on comparable timelines. Obstacles for Intel will be building up its IP for external customers (5,700 IP blocks in TSMC’s OIP), mobile companies conflicts fabbing at Intel, Intel’s priority for internal design + manufacturing over foundry and culture used to selling expensive/high-margin processors (US$33k sales/US$13k COGs/US$5k SG&A) over lean foundry (US$8k sales/US$4k COGs/US$50 SG&A).

Intel aiming to catch-up to Qualcomm

Intel Corporation (NASDAQ:INTC) is finally pushing toward integration, aiming to catch-up to Qualcomm/Mediatek. Consistent with our October update, Intel Corporation (NASDAQ:INTC) has engaged low-cost tablet makers and targets 4x growth to 40 mn+ units (15% share) and will ramp LTE more sharply in 2H14. Intel in mobile will have low impact on TSMC in the next 1.5 years, as its integrated LTE baseband + AP will not be out until mid-2015 and its low-cost chip stays at TSMC through 4Q15.

More mobile silicon development

Analysts at the firm expect Intel Corporation (NASDAQ:INTC) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s continued push to develop more mobile silicon and target its competitors for foundry business to remain an overhang. Despite the threat, they do not see much impact from either through 2014 and keep TSMC outperform with NT$116 target at 14.5x 2014E EPS on high 20nm/28nm HPM share continuing, good early progress on 16nm FinFET and gains into Apple and resilience relative to Taiwan tech.

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