A Catch-22 might be one of the worst things to run into, especially where investments are involved. And that is exactly what chip stock Intel (INTC) is facing, according to Loop Capital analyst Gary Mobley, who has a five-star rating on TipRanks. The notion clearly frightened investors, who sent shares slipping down fractionally in Tuesday afternoon’s trading.
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For those not familiar, a Catch-22—derived from the Joseph Heller novel of the same name—is essentially a paradox. It is a situation that cannot be escaped from due to contradictory rules or limitations that inherently cancel each other out. The original novel declared that combat pilots could get out of flying combat missions if they were found insane. But requesting a mental evaluation was a sign of sanity, thus, anyone who actually requested an evaluation was considered sane.
Intel faces something similar, Mobley noted. Mobley noted that the advanced-node manufacturing systems at Taiwan Semiconductor Manufacturing Co. (TSM) were better than Intel’s. Further, Intel also faces stiff competition for the product arm. However, in order to improve Intel’s products, and take on those competitors, Intel would need to turn to Taiwan Semiconductor, and thus pay its own competition. Worse, Mobley notes, Intel cannot recover its fixed costs without volume orders from the products division, which optimally, would be routed to Taiwan Semiconductor instead. Thus, Intel Foundry may end up as a “headwind” for Intel Products.
Clear Linux Departs
Meanwhile, Intel—which has been rapidly pulling out of projects in a bid to save cash—pulled out of another project. The Clear Linux OS team has been shut down, and a 10-year tenure of open source development has been shuttered with it. Intel both developed and maintained the Clear Linux system, which was specifically optimized to run with Intel hardware.
Clear Linux users, therefore, are advised that there will be no further security updates, and that they should move to other distributions to protect themselves.
Is Intel a Buy, Hold or Sell?
Turning to Wall Street, analysts have a Hold consensus rating on INTC stock based on one Buy, 26 Holds and four Sells assigned in the past three months, as indicated by the graphic below. After a 29.41% loss in its share price over the past year, the average INTC price target of $21.98 per share implies 5.38% downside risk.
