Analyst Note| Abhinav Davuluri, CFA |
On March 23, wide-moat Intel announced its long-awaited manufacturing plans, with new CEO Pat Gelsinger updating the firm’s 7-nanometer progress and use of third-party foundries. Additionally, Intel will more meaningfully offer foundry services to fabless chip designers, with the firm announcing a $20 billion investment to build two new fabs in Arizona. We note Intel had previously attempted to offer foundry services (notably to Altera before Intel acquired the FPGA firm in 2015), with little success. Addressing this concern, Gelsinger highlighted Intel will be creating a dedicated foundry business unit with segregated capacity that won’t compete with Intel’s own products and will be located in the U.S. and Europe. We still believe there are risks to this strategy (as Intel will have to develop the third-party IP libraries and customer support capabilities at which TSMC excels) but this is certainly a step in the right direction. At this juncture, we are maintaining our $65 fair value estimate, and we see shares as fully valued.