Intel rises as Wall Street weighs in on separation of PSG unit
Leon Neal
Intel (NASDAQ:INTC) shares rose more than 2% in pre-market trading on Wednesday as the company announced plans to separate its Programmable Solutions Group, or PSG, into a standalone business, with several Wall Street analysts weighing in on the move. 
J.P. Morgan analyst Harlan Sur, who has an underweight rating and $35 price target on Intel (INTC), said the separation ultimately positions PSG for an eventual initial public offering over the next two to three years. Based off AMD's (AMD) $35B purchase of Xilinx, it would value the field programmable gate array, or FPGA, unit between $20B and $25B, assuming roughly $2B to $2.5B in sales over the next 12 months.
"Near/mid-term, the move to a stand-alone business would provide the PSG team the time necessary to enhance/augment its product / technology portfolio - especially to go after the sticky/high margin embedded markets (auto, industrial, medical, aerospace, and defense) where we believe the Intel PSG team is under-indexed (we estimate embedded is ~25% of total PSG revenues)," Sur wrote in an investor note. 
Sur added that Intel's (INTC) team continues to do a "solid job" of unlocking value and even though an IPO may not happen for a couple of years, it's further proof that separating it into a standalone business makes sense, given the cash needs for its longer-term manufacturing strategy, with facilities
around the globe.
Northland Capital Markets analyst Gus Richard, who has an outperform rating and $56 price target on Intel (INTC), said over the next few years, the Intel of today could be four companies: a foundry, two fabless companies, the remainder of Mobileye (MBLY) that it owns and an equipment company.
He estimated that the parts are worth $56 per share, significantly higher than where shares are currently trading. 
Bank of America analyst Vivek Arya, who has an underperform rating and $32 price target on Intel (INTC), said the decision to separate the PSG unit is a "smart move" to unlock the value of the company's assets, outside of x86 architecture. 
Arya added that the renewed focus on FPGAs should help add competition in the market, believed to be worth some $8B currently.
Barclays analyst Blayne Curtis, who has an equal-weight rating on Intel (INTC), was a bit more skeptical of the announcement.
"This spin out was back before the MBLY spin was announced but the jury is out on whether transaction unlocked any value, with INTC stock still down 30% since the announcement (vs. SOX down 11%)," Curtis wrote in a note, adding that Intel's fundamentals are "clearly" the larger reason for the decline. 
He added that while Intel will be the majority owner of the FPGA unit (the former Altera), the separation reduces the benefits the acquisition created to increase scale for leading edge investment and synergies across the data center and infrastructure markets. 
"If it's about accountability, then it's unclear why PSG was folded into [Data Center and AI Group] when times were good during the pandemic and it's being broken off when the business is turning negative," Curtis continued. 
"We appreciate the continued efforts to right the ship, but we remain on the sidelines as we are skeptical that INTC can execute on its roadmap and see some downside to Q4/Q1 estimates."

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