Intel stock drops as foundry capacity buildout plans have one analyst predicting a company split

In a note Tuesday, UBS analyst Timothy Arcuri said he expects Intel to provide an update on its product roadmap and customer adoption of its foundry services business, or IFS, on Wednesday.

Intel confirmed reports from over the weekend that it was building new foundry capacity in Germany, Poland and Israel.

From last week: Intel’s stock rocks best week in nearly 14 years as analyst notes a ‘material AI opportunity’

“We have long argued that if Intel is truly going to pursue an external foundry model — which at this point would be hard to backpedal from given its pending acceptance of significant amounts of Chips Act money — it needs to cleave the manufacturing assets from the product businesses,” Arcuri said.

“Essentially, we argue Intel likely splits into a foundry business and a fabless product business, and the segment P&L is a big first step.” Arcuri said. “Such a separation is necessary because there is not a single potentially significant customer that tells us they would make a big commitment to Intel foundry as long as it would be competing with Intel for the best wafers, highest yielding lots, etc.”

Intel uses its own foundries — or fabs, those high-tech plants that create the silicon wafers onto which transistors are etched to make microchips — unlike other chip makers that are “fabless” like Nvidia Corp.
NVDA,
+2.61%,
Advanced Micro Devices Inc.
AMD,
-0.96%,
and Apple Inc.
AAPL,
+0.05%.
Those companies use third-party fabs like Taiwan Semiconductor Manufacturing Co.
TSM,
-0.56%
for their chips.

Read: TSMC stock gains on report that Nvidia AI-chip order has boosted production

Since Chief Executive Pat Gelsinger took over the reins of Intel back in 2021, one of his aims has been to build out fab capacity and take some share from TSMC in third-party foundry work through IFS.