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Can New CEO Steer Intel in the Right Direction? Analyst Weighs In

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Intel (INTC) is trying on a new outfit, and investors appear to like the new look. Shares gained 11% this week after the company announced the appointment of a new CEO.

The struggling semiconductor giant announced CEO Bob Swan is stepping down and will be replaced by VMWare CEO Pat Gelsinger. The new man at the helm began his career at Intel, and served as the company’s first Chief Technology Officer, during his initial 30-year stint. In contrast to Swan whose background was in finance, Gelsinger is an engineer and was the architect of the original 80486 processor.

“Given Gelsinger's knowledge of Intel and his technical acumen, he is likely one of the best candidates for the role of Intel's CEO,” said Northland analyst Gus Richard. "We also believe Mr. Gelsinger has his work cut out for him.”

That last sentence is key. Intel’s woes have been well documented and during Swan's short time in charge (since Jan 19), Intel has struggled as expensive production delays have seen it lose market share to rival AMD.

There are other issues, Richard says.

“Intel no longer has the manufacturing scale to compete with TSMC. Also, it primarily fills its fabs with x86 processors that require only the most advanced process. Further, due to the high level of re-use, overinvestment in 14nm Intel's capacity will require significant investment to catch up to TSMC. For these reasons, fab lite is not a winning strategy.”

The solution, according to Richard, is to sell the fabs, and Gelsinger has the “creditability to do this whereas the former CEO did not.”

Global Foundries, Samsung and TSMC are all possible takers. And while Richard notes that the process of going fabless will no doubt be a “painful 3-year transition,” he believes the quality of the company’s assets, which include Mobileye, Si Photonics, Intel Capital, Altera, and “deep process technology know-how that could be leveraged with a foundry partner,” are being underestimated by investors.

“Investing in these assets over time could return INTC to a growth company,” Richard summed up. “But it is a steep hill to climb that will require short steps, deep breath, and a lot of time.”

For the time being, Richard sticks to a Market Perform (i.e. Hold) rating, backed by a $46 price target. The figure suggests shares will decline by 20% in the year ahead. (To watch Richard’s track record, click here)

A Hold is also the conclusion reached by the analyst consensus, and is based on 15 Holds, 6 Buys and 5 Sells. The $54.15 average price target is a more optimistic one than Richard’s, yet still implies a share drop of 5% in the coming months. (See Intel stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.