Updated at 9:48 AM EDT
Intel shares powered higher in early Thursday trading after the struggling chipmaker named industry veteran and former board member Lip-Bu Tan as its new chief executive, sparking fresh speculation about its plans to split into two separate companies.
Intel (INTC) shares are still higher for the year but have slumped alongside the broader market selloff amid some confusion over the fate of its plan to spin off its Intel Foundry Services business as a stand-alone entity and focus on its chip design operations.
That plan, formed under the leadership of former CEO Pat Gelsinger, dovetails with the Trump administration’s effort to return chip manufacturing to the U.S and has ignited speculation that Taiwan Semiconductor, (TSM) the world’s biggest chip manufacturer, would run the operation as part of a joint venture.
Tan, as a former Intel director, reportedly clashed with Gelsinger over that aim before stepping down from the board last August.
The former Cadence Design Systems CEO was approached in December as a potential successor to Gelsinger and will assume the new role, as well as a seat on the board, on March 18.
Former Intel CEO Pat Gelsinger reportedly clashed with new CEO and former board member Lip-Bu Tan over plans to separate the struggling chipmaker.
“Intel is a company I have long admired,” Tan said in a letter to employees following his appointment. “Together, we will work hard to restore Intel’s position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before.”
“That’s what this moment demands of us as we remake Intel for the future,” he added.
Intel foundry splitoff in doubt?
Those remarks, however, indicated he might not wish to proceed with the foundry spinoff, although the statement was ambiguous enough to also suggest he might simply wish to delay, rather than scupper, the process.
Bank of America analyst Vivek Arya, who boosted his Intel price target by $6 to $25 a share in a note published Thursday, was bullish on the Tan appointment, irrespective of the ultimate decision on the foundry division.
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Citing Tan’s solid track record at Cadence Design Systems, where the stock’s performance was double that of the Philadelphia Semiconductor benchmark, as well as his deep knowledge of the Intel board and the broader chip industry, Arya also lifted his rating on the stock to ‘neutral’ from ‘underperform’.
“The upside potential, however, is balanced against risks from a lack of an [artificial-intelligence] roadmap and increasing competition from ARM-based PC and server CPU rivals, amidst a tough macro environment,” Arya noted.
Cantor Fitzgerald analyst C.J. Muse, who carries a $29 price target on Intel stock, was also upbeat on the appointment but cautioned that the new CEO “clearly has a lot of wood to chop” when he assumes the role next week.
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“We believe it is likely that a split of the two businesses had been seriously considered but also note that Tan was quoted in the press release as praising Intel’s ‘vast customer installed base and robust manufacturing footprint,'” said Muse.
“Thus, it is unclear to us whether a separation of the two businesses will now occur (our sense is it will eventually occur; just unclear with [the] new hire whether that is pulled in or pushed out),” he added. “What is clear? Much more significant cost-cutting likely on the come.”
KeyBanc Capital Markets analyst John Vinh echoed concerns tied to Intel’s myriad challenges but was largely upbeat on the Tan’s appointment given his track record and industry background.
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“Tan is a longtime technology investor and widely respected executive with more than 20 years of semiconductor and software experiences as well as deep relationships across Intel’s ecosystem,” he said.
“However, given the multitude of challenges that Intel currently faces, we are maintaining our ‘sector weight’ rating, but look forward to hearing more about Mr. Tan’s strategy for turning Intel around,” Vinh added.
Intel shares were last marked 15.7% higher in early Thursday trading to change hands at $23.88 each.
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