What happened
No longer the high-flying tech stock it once was, Intel (INTC -1.07%) got its wings clipped on Wednesday. Although the impetus for this was an ostensibly bullish analyst note, there was enough in the document to warrant concern. At the close of the trading day, Intel's share price had sunk by more than 3%, a notably steeper fall than the S&P 500 index's 0.2% decline.
So what
The note was authored by Northland Capital Markets' Gus Richard, who still recommends Intel with an outperform (i.e., buy) rating, at a price target of $45 per share.
In the note, Richard wrote that it is critical for the tech company to take back its once solid lead in process technology. He's convinced that the company has positioned itself to do so. As for goal No. 2, in his view, this is "creating a profitable foundry that external customers can use."
"We believe filling older fabs no longer needed for Intel's internal products with foundry customers fixes INTC's business model," he added.
If the company were to succeed on both counts, Richard argued, it could book significant profits with its internal products, and "decent" gross margins with the foundry outsourcing model.
Now what
From a top-down perspective, however, the analyst is pointing out that Intel has untapped potential that could require much capital and effort to exploit. The chip business is more competitive than it was previously, and Intel is quite some years away from its dominant position on top of the industry.
What Richard is suggesting is quite a modification in strategy for the company, and large businesses with a long history can often be slow to change.
