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Monday, Intel Corporation (NASDAQ:INTC), currently valued at $89 billion in market capitalization, maintained its Market Perform rating from Raymond (NSE:RYMD) James following the announcement of a significant asset sale. According to InvestingPro data, Intel has been quickly burning through cash, with negative free cash flow of $15.7 billion in the last twelve months, highlighting the strategic importance of this divestment. Intel has entered into an agreement to sell a 51% stake in its subsidiary, Altera, to private equity firm Silver Lake. This move aligns with the strategy of Intel’s new CEO, Lip-Bu Tan, to shed non-core assets and fortify the company’s balance sheet.
The deal assigns Altera a valuation of $8.75 billion, which is notably less than half the price Intel paid for the company in 2015, which was $16.7 billion. The valuation is based on approximately 5 times the projected sales for the calendar year 2025. This transaction comes as Intel trades at relatively modest valuations, with a price-to-book ratio of 0.87, according to InvestingPro analysis, which suggests the stock may be undervalued relative to its assets. This figure stands in stark contrast to Altera’s FPGA industry peer Lattice (OTC:LTTC) Semiconductor Corporation, which trades at around 11 times enterprise value to sales, and also falls short of the roughly 10 times sales multiple that Advanced Micro Devices (NASDAQ:AMD), Inc. proposed for its acquisition of Xilinx (NASDAQ:XLNX) in 2020.
Raymond James highlighted that the discounted valuation could be attributed to Altera’s lower gross margins, which are around 50% compared to the 69-70% margins typical of its competitors. The extent of the discount was more significant than the firm had anticipated. Nevertheless, the appointment of Raghib Hussain as the CEO of Altera was seen positively by the analysts. They are optimistic that Intel’s remaining 49% stake in Altera will eventually be valued more in line with industry peers.
The transaction with Silver Lake is viewed as a strategic step towards realigning Intel’s focus on its core business areas. The sale of the majority stake in Altera is expected to provide Intel with the financial flexibility to pursue this realignment under the guidance of their new CEO. With annual revenue of $53.1 billion and analysts predicting a return to profitability this year, according to InvestingPro data, this strategic move could help strengthen Intel’s financial position. For deeper insights into Intel’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Intel Corporation has announced the sale of a 51% stake in its Altera business to private equity firm Silver Lake, valuing Altera at $8.75 billion. This transaction, expected to close in the second half of 2025, is part of Intel’s strategy to focus on its core business. The sale is significantly less than the $16.7 billion Intel originally paid for Altera in 2015. Intel will retain a 49% minority stake in Altera, allowing it to benefit from any future growth. The deal is expected to enhance Intel’s financial position by providing additional funds for investments in its future 18A/14A nodes.
Following the transaction, Raghib Hussain will take over as CEO of Altera, succeeding Sandra Rivera. Analysts from BofA Securities, Needham, Stifel, and Baird have maintained their ratings on Intel stock, with BofA and Baird keeping a Neutral rating and Stifel a Hold rating. Despite the strategic move, analysts have expressed concerns about Intel’s competitive position in the x86 CPU market and the potential dilution of long-term earnings. The sale also reflects a strategic realignment, with Intel aiming to improve operational efficiency and focus on its core operations.
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