Tech analyst explains why Intel should be split apart and how to do it

Investing.com -- Northland analysts argued in a note Wednesday that Intel (NASDAQ:INTC) should be broken into two separate entities—Intel Products and Intel Manufacturing—stating that the company “does not have the skill, resources, or scale to build and fill leading-edge fabs.” 

“We believe the only option is to split the Company into Intel Products and Manufacturing,” said Northland, adding that this split would “reduce the need for external capital, accelerate a US foundry ecosystem, and unlock shareholder value.”

“In leading-edge logic, design and manufacturing are two businesses that no longer belong under one roof,” the analysts wrote. 

They point to Intel’s historical missteps, stating, “Intel missed the transition to mobile phones and the foundry model 25 years ago, leading the Company to become a subscale manufacturer.” They add that Intel’s struggles with the 10nm process and slow adoption of EUV have left it trailing AMD (NASDAQ:AMD) and TSMC.

The proposed plan involves selling off most of Intel’s fabs to “TSMC, Samsung (KS:005930), UMC, Global Foundries, Tower Semiconductor (NASDAQ:TSEM), or Rapidus” while retaining select facilities under “Intel Development Corp.,” which would focus on “process technology, advanced packaging, and servicing ultra-high-end US military demand.” 

Northland argues this would help “jump-start a foundry ecosystem outside of Taiwan.”

As for Intel Products, the analysts suggest it could thrive independently or be acquired by a company like Broadcom (NASDAQ:AVGO) or Qualcomm (NASDAQ:QCOM), which “have far superior design capabilities.” 

They note that a sale could face resistance due to Intel’s cross-licensing agreement with AMD but argue, “AMD’s key 64-bit patents expired in 2023” and that AMD itself benefits from having multiple x86 suppliers.

Ultimately, Northland believes keeping Intel intact “does not make economic sense” and that splitting the company “could reinvigorate it” while minimizing external funding needs.