What could a shift in Intel's foundry strategy bring?

Intel is reportedly considering deferring significant third-party foundry production from its 18A node to the later 14A process, a move Morgan Stanley believes will not materially impact earnings over the next two years given modest initial external revenue expectations. While this shift could delay meaningful foundry volume ramps further into the decade and challenge Intel's competitiveness against TSMC, it may allow management to stabilize its core PC and server businesses. Morgan Stanley remains cautious, awaiting clearer progress in Intel's core processor roadmap and expressing skepticism about foundry operations contributing materially to profits within an investable timeframe.

Analysis

According to a Morgan Stanley analysis, Intel's reported plan to defer significant third-party foundry work from its 18A node to a later 14A process is not expected to materially affect earnings over the next two years. This assessment is based on the view that external customer revenue from the 18A node was already projected to be modest, likely starting with small pilot projects, thereby limiting the financial impact and risk of capital writedowns from a delay. The shift, however, carries significant strategic trade-offs. While it may allow management to focus on stabilizing its core PC and server businesses—which Morgan Stanley views as a less disruptive path for the company's turnaround—it also pushes meaningful foundry volume ramps further into the decade. This delay raises questions about Intel's long-term ability to compete aggressively with industry leader TSMC. Consequently, Morgan Stanley remains cautious and "on the sidelines," expressing skepticism that the foundry business will become a material profit contributor within a viable investment timeframe and emphasizing that "recapturing value starts with legacy products."

Key Decisions for Investors

• Investors should monitor for stabilization in Intel's core PC and server segments, as the reported strategy pivot prioritizes these revenue-driving businesses over near-term foundry ambitions.
• It is prudent to temper expectations for the foundry services division's near-term profitability, given the potential delay in volume production to 2027 and analyst skepticism about its contribution to the bottom line.
• Consider the long-term competitive risk, as a deferred entry into high-volume advanced foundry services could make it more difficult for Intel to challenge TSMC's market dominance.
• Weigh Intel's low enterprise-value-to-sales multiple against the execution risks and extended turnaround timeline highlighted by the analyst note, which suggests patience is required before strategic initiatives bear fruit.