Intel slips as Wall Street has tepid reaction towards foundry update
Justin Sullivan
Following Intel's (NASDAQ:INTC) update on its foundry services business, several Wall Street analysts weighed in on the update with a somewhat tepid and mixed reaction.
Bernstein analyst Stacy Rasgon, who has a market perform rating and per-share price target of $30 on Intel (INTC), said that even though the economics of the foundry look "unsurprisingly horrible" right now, Intel fully recognizes it needs to develop a "structurally more efficient cost structure." 
"Up until this point, however, we have been unclear where those [cost of goods sold] savings are coming from (or indeed, whether the company even knew)," Rasgon wrote in an investor note, referencing Intel's comments that it will pull $8B to $10B in costs out of the business, including roughly $3B this year. 
"However, they did identify at a high level a number of efficiencies (expedites, sampling, test times, architecture etc) with more (utilizations, steppings, etc) on top that they believe can account for $4-5B and in general do not appear to be hugely revenue-dependent (important)." 
Intel (INTC) shares slipped more than 1% in mid-day trading on Thursday, following Wednesday's 6% decline.
Rasgon added this would probably allow Intel (INTC) to improve gross margins by roughly 10 points - though not get the company to its 60% target - but seeing as there is a significant amount of costs to take out, identifying and admitting to the discrepancy between the company and its competitors is "probably a healthy exercise."
Intel (INTC) did not announce any foundry customers at the event, something that may have disappointed investors, according to Wells Fargo analyst Aaron Rakers. 
Rakers, who has an equal weight rating on Intel (INTC), said the event made him "incrementally positive" on its strategy, especially after hearing the cost savings details, though he cautioned that "a lot of execution uncertainties remain."
Bernstein's Rasgon added that the lack of a foundry customer announcement may have explained some of the sharp decline in the stock on Wednesday, but management indicated that an announcement could occur in the second-half of the year. 
"Overall we suspect the event was likely viewed as modestly disappointing by investors given the lack of customer announcements, though we admit we found the self-introspection of their situation refreshing, and further disclosure on cost drivers somewhat encouraging," Rasgon added.
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