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JP Morgan analyst Harlan Sur reiterated an Underweight rating on Intel Corp (NASDAQ:INTC) on Tuesday, setting a price forecast of $23.
On Monday, before the market opened, Intel announced a 51% stake sale of its programmable chip business, Altera, to private equity firm Silver Lake Management for $4.46 billion, valuing Altera at $8.75 billion with a transaction multiple of ~5.7 times calendar 2024 sales.
As a reference, Intel bought Altera in 2015 at 9 times calendar 2014 sales and in 2020, and Advanced Micro Devices, Inc (NASDAQ:AMD) bought Xilinx for 11 times calendar 2019 sales).
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Over the past 10 years, since Intel acquired Altera, revenues have declined by 20% compared to 87% growth for the overall semiconductor industry.
The transaction marks Intel’s first significant strategic move under its new CEO, Lip-Bu Tan. It underpins the company’s broader turnaround strategy and refocuses on its core x86 businesses.
Financially, Altera generated $1.54 billion in revenue last year (putting the deal value at 6 times calendar 2024 sales) with ~50% adjusted gross margin, and we estimate Altera’s revenue to grow to $1.6 billion (+4%) in calendar 2025.
Intel originally acquired Altera for $16.7 billion in December 2015, 9 times calendar 2014 sales. The lower transaction value reflects a lower revenue profile (Altera revenues are down 20% over the past 10 years versus 87% growth in the semiconductor industry) and margin profile.
Intel plans to de-consolidate Altera from its financial statements and expects to close the deal in the second half of calendar 2025. The sale strengthens Intel’s balance sheet amid a more challenging macro environment.
Raghib Hussain will succeed Sandra Rivera as CEO of Altera (effective May 5). Previously, Raghib was President of Products and Technologies at Marvell Technology, Inc (NASDAQ:MRVL), overseeing advancements in its custom AI chips and networking solutions business.
Raghib led the Data Center Cloud Group, focusing on integrated silicon portfolios for switching, connectivity, and computing.
Overall, Sur noted this is a step in the right direction. However, he remained underweight on the stock as Intel continues to navigate through a challenging period, as it right-sizes the company and continues to move forward with its technology/manufacturing product roadmaps.
Sur projected first-quarter revenue of $12.2 billion and adjusted EPS of $0.00.
Price Action: INTC stock closed lower by 2.26% at $19.85 on Tuesday.
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