Intel Faces Challenges, But Hope for Recovery Grows in 2025

Intel’s difficult year continues as the company’s stock price has plummeted nearly 50% since the start of 2024. With its removal from the prestigious Dow Jones Industrial Average in November, Intel’s fortunes seem to pale in comparison to its would-be rival, Nvidia, which now ranks as the second-largest company in the world by market cap.

As 2025 approaches, many are curious if Intel can successfully turn its situation around.

Intel’s Challenges Intensify in 2024

The latest Q3 figures reveal the extent of Intel’s struggles. The company’s revenues fell 6% compared to last year, resulting in a shift from an adjusted earnings per share (EPS) of $0.41 to a loss of $0.46. The semiconductor manufacturer’s primary problem lies within its third-party foundry business, introduced in 2021; rather than growing, this segment has accrued significant losses.

During Q3, revenue from the foundry business dropped 8% year-over-year to $4.4 billion, and its operating losses surged to $5.8 billion, a sharp increase from $1.8 billion the previous year. A $3.1 billion impairment charge contributed to these figures, with losses even higher at $2.7 billion if excluding this charge.

In response, Intel is planning to spin off its foundry business as an independent subsidiary, aiming to better cater to clients and secure external funding. This could also signal the eventual separation of this unit from the parent company.

Intel anticipates improvements in the foundry business’s operating losses next year, thanks to new technology nodes and cost-reduction initiatives. Nevertheless, a potential setback emerged when The New York Times reported proposed cuts to Intel’s $8.5 billion grant from the CHIPs Act, which supports semiconductor manufacturers in the U.S. Intel was recently confirmed to receive $7.86 billion, alongside $3.3 billion through a separate Department of Defense contract.

On a more positive note, Intel’s data center and artificial intelligence (AI) divisions showed robust performance, with Q3 revenue rising 9% to $3.3 billion. However, the growth rate remains modest compared to competitors, and the company indicated that its Gaudi 3 AI accelerator might not hit expected revenue targets for 2024.

Conversely, Intel’s client computing group— which posted significant growth earlier in the year— reported a 7% revenue decline in Q3. Looking ahead, Intel hopes that its upcoming Intel Core Ultra 200V Series processors, formerly Lunar Lake, will bolster its AI-related PC sales while the new Arrow Lake processors support desktop revenue growth. The debut of the Panther Lake CPU, built on new 18A technology, is anticipated in the second half of next year.

Other segments of Intel’s business faced difficulties as well. Revenue for its Altera subsidiary fell 44% year-over-year, although it reached an operating profit quarterly despite this decline. The company plans to explore an initial public offering (IPO) for Altera in the future.

Meanwhile, Mobileye, which provides chips for autonomous vehicles, saw its revenue decline by 8%, marking the acquisitions of both Altera and Mobileye as misses for Intel thus far.

Image source: Getty Images.

Breaking Up Could Enhance Intel’s Value

Intel seems to be moving towards a breakup strategy, which may ultimately prove beneficial for its shareholders.

While its main product business shows stability rather than explosive growth, it is projected to generate approximately $12.6 billion in operating income this year—equating to an estimated EPS of about $2.20. Applying a price-to-earnings (P/E) ratio of 10x to 12x to this core business suggests a stock price in the range of $22 to $26.

Despite challenges in the foundry sector, Intel boasts substantial physical assets, with $104 billion recorded on its balance sheet and $68.5 billion spent on capital expenditures (capex) since late 2021. Assessing its foundry business based on capex investments provides additional valuation insights.

However, Intel’s financial position is somewhat hampered by $26 billion in net debt, corresponding to this business. After factoring in the debt, the foundry segment could be valued at around $10 per share.

Furthermore, its nearly 88% stake in Mobileye amounts to about $12.8 billion, translating to roughly $3 per share for Intel. Altera’s segment holds additional value.

In total, a restructured Intel could potentially be valued between $35 to $40 a share, presenting significant growth potential from current trading levels. As the company appears to be taking steps towards a split, prospects for a recovery in 2025 seem increasingly possible.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Mobileye Global and following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.

The views expressed are those of the author and do not necessarily reflect the views of Nasdaq, Inc.