(Bloomberg) -- Since Intel Corp. announced that Lip-Bu Tan would take over as CEO last week, the company’s shares have soared. Now, as Tan assumes his job, it is far from clear how he will fulfill the big hopes that have been placed on his shoulders.
Ahead of taking on his new role on Tuesday, Tan sent a letter to employees warning that it won’t be easy for the company to hold off the forces that have sent it into decline.
But Tan didn’t specify how he plans to tackle the problems, leaving analysts to wonder whether he will try to break up Intel and sell it off for parts, as many on Wall Street want, or whether he’ll attempt a version of his predecessor’s plan to work from the inside to fix its troubled manufacturing and product lines.
It all adds up to a “show me” moment for the company, according to Joe Tigay, portfolio manager of the Rational Equity Armor Fund. “We’re going to need to see some improvement in their product in order for it to get back to where it once was. And I think it’s a great start, it’s a good direction, but they are still a long ways away from where they were.”
The announcement of Tan’s appointment last Wednesday sparked a rally that has sent the stock up 24% through Monday’s close, adding $22 billion to the company’s market value and making it the top performer on the Philadelphia Stock Exchange Semiconductor Index since the beginning of the year. Bank of America upgraded the stock in the wake of the news, writing that it “has a greater opportunity to restructure/turn things around” under Tan. Shares fell about 1% in early trading Tuesday, alongside a broader-market slip.
But analysts noted that Tan’s letter — in which he promised to re-establish Intel as a “world-class foundry” for chips — did not make it clear if he is considering splitting up the company’s foundry business from its chip-design arm, as has been discussed in the past. He also did not address recent reports that one of its biggest competitors, Taiwan Semiconductor Manufacturing Co., might help operate some of Intel’s US factories at the request of the Trump administration.
The optimism around Tan is in no small part a reflection of how far Intel has fallen from the days when it was the giant of the semiconductor industry. The stock is down about 60% from the peak it hit in early 2000, erasing more than $330 billion in market value for investors.
Its recent woes have been tied closely to the company’s struggles to compete with competitors in the race to create the specialized chips used by the artificial intelligence industry. On Monday, Reuters reported that Tan has considered significant changes to the company’s chip manufacturing methods and artificial intelligence strategies, and that revamping the manufacturing operations is a key priority.
Now, though, even the chipmakers who have profited from the recent excitement around AI are facing concerns about their prospects in the face of macroeconomic uncertainty and questions about the future demand for AI chips as AI models become more efficient. The Philadelphia semiconductor index, SOX, is down 21% from its peak last July through Monday’s close.
Against this backdrop, Intel’s future looks particularly shaky. In late January, Intel gave a revenue forecast that was weaker than expected, the latest such let down. Of the past five reports, only one was met with a positive reaction in the shares, according to data compiled by Bloomberg.
Estimates have repeatedly been cut in the wake of the disappointments, and analysts now expect a net loss of 28 cents per share in 2025, down from earnings of roughly 12 cents per share three months ago. The view for revenue has dropped more than 4% over the same period.
Fewer than 10% of the analysts tracked by Bloomberg recommend buying Intel, and the recommendation consensus — a proxy for the ratio of buy, hold, and sell ratings — is essentially tied with the worst in the SOX. Intel trades about 5% above the average analyst price target, by far the worst implied return among chipmakers over the coming 12 months.
Randy Hare, director of equity research at Huntington National Bank, is closely watching the $19 level as critical support for the stock, which last closed at $25.69.
“If Intel cuts its outlook and sets out a plan for growth, I would view it as a buying opportunity if the stock fell under $19 in that scenario,” he said. “If it falls under $19 because it has no plan for growth and we don’t see revenue accelerate, that’s a sell signal.”
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--With assistance from Philip Sanders.
(Adds stock move after market open in fifth paragraph)
