Intel’s Foundry Business Still Crawling: Nomura

Intel’s Foundry Business Still Crawling: Nomura
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When Intel Corporation (NASDAQ:INTC) named Brian Krzanich as its new CEO in May 2013, there were expectations that the company would soon open up its foundry business to more third parties. The chipmaker signed multiple contracts, though, with smaller companies. In November, the Santa Clara-based company said that it will open its doors to competitors, letting them utilize Intel’s leading edge.

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Intel Corporation (NASDAQ:INTC) has gained a three year edge in FinFet against rivals such as Samsung Electronics Co., Ltd.(ADR) (LON:BC94) (KRX:005930) and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) (TPE:2330). Intel has successfully scaled transistor density, which TSMC and Samsung are struggling to achieve. Intel recently said that, on 14nm transistors, it enjoys about 30-35% cost-per-transistor advantage.

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Despite all the talks and technological advancements, Intel Corporation (NASDAQ:INTC) said last month that it will postpone the opening of its Fab 42 plant in Arizona. The plant was expected to manufacture advanced chips at 14nm node. Nomura analysts Romit Shah, Sanjay Chaurasia and Sidney Ho said that the company’s decision seems to be market-driven. But Intel has been considering this decision for many quarters as it continues to gauge interest of potential foundry customers.

Nomura says Intel Corporation (NASDAQ:INTC) has likely not scored a win with Apple Inc. (NASDAQ:AAPL) on 14nm nodes. The Cupertino-based tech giant is expected to use Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) (TPE:2330)’s 20nm process for its next-gen A8 processor. For A9, the iPhone maker is expected to go ahead with Samsung Electronics Co., Ltd.(ADR) (LON:BC94) (KRX:005930)’s 14nm processes for A9, likely in 2015. Moreover, analysts say even Qualcomm, Inc. (NASDAQ:QCOM) isn’t engaged in any meaningful discussion with Intel. Apple and Qualcomm represent a $5 billion opportunity for the company.

Intel unwilling to compromise on margins

Pricing is another thing that may prove unfavorable to Intel Corporation (NASDAQ:INTC). Though 14nm nodes have a lower cost, Intel has been unwilling to compromise on gross margins. Foundry customers believe that moving their design to Intel’s facilities may not prove as beneficial to them as Intel doing its own architecture on its own process. The Santa Clara-based company has to show them that its process offers the same advantage to them as well.

Nomura has a Neutral rating on the stock with $27 price target. Intel Corporation (NASDAQ:INTC) shares inched up 0.72% to $23.69 in pre-market trading Thursday.

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