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This article is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
In light of the recent funding-for-equity deal between the US government and Intel, financial analysts are speculating about its implications. Morgan Stanley’s Joseph Moore recently weighed in with a more cautious perspective.
As we previously noted in our post, the US government is set to convert $8.9 billion in grants into an equity stake, consisting of $5.7 billion in CHIPS Act grants and a $3.2 billion Secure Enclave award from the Pentagon.
Under the proposed arrangement, the US government will receive 433.3 million newly issued Intel shares at $20.47 each, equivalent to a 9.9% stake. Importantly, this stake is non-voting and does not include board representation.
In an attempt to complicate any future spin-offs of the foundry division, the US government has negotiated a 5-year warrant priced at $20 per share, allowing it to purchase up to 5% of Intel’s common shares if the company sells more than 49% of its foundry business.
White House economic adviser Kevin Hassett believes this deal will help Intel “get its act together,” but analysts are less optimistic. Morgan Stanley’s Joseph Moore argues that a turnaround for Intel is not straightforward and no quick fixes are available. In his view, the recovery must start with an improved microprocessor roadmap.
Morgan Stanley remains skeptical of Intel’s long-term foundry strategy, criticizing its “multiple iterations” over several decades. The analyst believes Intel should focus on stabilizing its microprocessor market share to achieve the necessary scale for advanced investments like the next-gen 14A process.
Moore points out that older products based on the 10nm and 7nm nodes are currently sold out, indicating customers prefer these products over newer ones. He argues that if the government’s stake has strategic strings attached, it may not be the best path forward for Intel’s foundry division, which is losing $10 billion annually and carrying $20 billion in net debt.
Morgan Stanley suggests several restructuring paths: maintaining the IDM 2.0 model supporting both processors and foundry, reverting to IDM 1.0, or adopting a “fab lite” approach. Each has trade-offs, with IDM 2.0 presenting the greatest potential but also significant risks if performance leadership in servers is not achieved.
Despite CEO Lip-Bu Tan’s conservative forecasting, Moore believes Intel can generate solid returns by regaining microprocessor share and aligning costs to $60 billion of revenue without relying on new fabs or complex government interventions.
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