Intel (INTC.US) plans a bailout; Citigroup proposes exiting the manufacturing business

Intel's (INTC.US) problems in its manufacturing or foundry business have become a "red flag" for the company led by Pat Gelsinger as it tries to turn things around. Despite management's bet on its foundry business, Citigroup believes the company should get out while it still can. Citigroup analyst Christopher Danely said in a note to clients: "While we believe Intel's CPU manufacturing business is on track, we still believe the company should exit the foundry business for the benefit of its shareholders." Danely rates Intel "neutral" with a target price of $25. Gelsinger is expected to present a cost-cutting plan centered on divesting non-essential businesses at the board meeting in late September, according to reports. The plan does not include spinning off or selling the company's chip factories, the sources said. At the Citigroup Technology conference on Wednesday, Intel CFO David Zinsner said the company would skip the 20A process and move to the more advanced 18A process. Danely said this would save Intel another $500 million in costs (Intel recently announced a $10 billion cut in capital spending and $4 billion in operating costs), but still lags behind industry leader TSMC (TSM.US), which makes chips for Nvidia (NVDA.US), Apple (AAPL.US), AMD (AMD.US) and others. "We continue to expect Intel to match TSMC in customer CPU manufacturing by the middle of 2025, but management acknowledges that the data center market may take longer," Danely said. Zinsner said at the conference that the company should see "meaningful" foundry revenue from its advanced packaging services next year, but not until 2027 for "meaningful" wafer-level foundry revenue. Therefore, Danely believes the foundry business will dilute the company's margin next year.