2020 has been a rough year for Intel. One of its major clients (Apple) ditched it in favor of in-house custom silicon, while AMD has been grabbing shares left and right, both across the mobile as well as the DIY markets. However, Intel’s game is far from over. The company has a spending power roughly thrice as much as AMD and NVIDIA’s combined, and although it is lagging behind the abovementioned rivals in terms of the process technology, there’s still a long battle ahead.
As per UBS analyst, Timothy Arcuri, outsourcing could help Intel weather this rough spell. Echoing the tone of other industry observers, he believes that it’s simply inevitable. Intel has already announced that it’ll be taking a more flexible approach in terms of manufacturing, with the Xe-HPG and parts of the Xe-HPC lineup already set to be outsourced to TSMC.
However, it doesn’t mean that Intel to sell off its own foundry business, just balance things a bit: focus more on the core design aspect and retain that performance lead, all the while producing part of its products at its domestic foundry.
He wrote that Intel could be 80% outsourced by 2026. If Intel can’t fix its manufacturing issues, outsourcing could still boost the stock. Just going to 50% outsourcing would save the company up to $4 billion a year in capital expenditure, adding 25% to free cash flow, according to Arcuri. Using a multiple of 15 times enterprise value to free cash flow, those savings could translate to $10 to $15 of upside for the stock.Timothy Arcuri, UBS analyst
Arcuri believes that Intel could be outsourcing as much as 80% of its products by 2026 to boost stocks and catch up with a resurgent AMD. While 80% may seem a bit too much, keep in mind that 2026 is still five years away. A lot can change in that time-frame. Just five years back, Intel was the undisputed industry leader in the microprocessor space with its 14nm Skylake core. Then it decided to take a nap.
Put simply, the idea that Intel would still be 18-to-24 months behind its competition even 3.5 years from today is untenable, in our view. Thus, we see no option but for Intel to aggressively pursue an outsourcing strategy even as it continues to develop its own 7/5 nm process.