Intel (INTC, Financial) is exploring the sale of its Network and Edge unit as part of a strategy to streamline operations and strengthen its balance sheet under CEO Lip-Bu Tan. After selling a 51% stake in its Altera programmable chip business to Silver Lake for $4.46 billion in April, Intel is focused on shedding non-core assets to support its turnaround. Tan has also initiated a restructuring plan to remove bureaucratic layers, aiming to enhance execution and focus on Intel's strengths in PC and data center chip manufacturing.
The Network and Edge unit, which generated $5.8 billion in revenue and $931 million in operating income in FY24, designs chips for telecommunications equipment, networking infrastructure, and edge computing applications. It serves telecom providers, cloud service providers, and enterprises deploying 5G and IoT solutions. Competitors like Broadcom (AVGO, Financial) have gained dominance in high-margin networking segments, reducing the unit's relevance to Intel's core strategy.
The unit's $5.8 billion revenue represents about 10% of Intel's total FY24 sales, but its growth has been modest at 1% in FY24. While Intel has not yet solicited bidders, potential acquirers could include Broadcom (AVGO, Financial), which may integrate the assets to enhance its 5G and cloud offerings, or Marvell Technology (MRVL, Financial), known for its infrastructure chip expertise and previously mentioned as a potential buyer for Altera.
Selling the Network and Edge unit could generate a substantial cash influx, possibly ranging from $20 to $25 billion, to reduce debt, fund R&D for next-generation chips, and support fab expansions vital for the 18A process technology. However, this divestiture carries risks, as the unit's chips are crucial for telecom and edge computing, markets with long-term growth potential. A sale could allow competitors like Broadcom to gain strategic ground. Intel's decision to integrate the unit's financials into its data center and PC groups by 1Q25 indicates it may see the unit as less critical, but selling prematurely could undervalue its future potential.
In conclusion, Intel's potential sale of the Network and Edge unit is a strategic move to streamline its portfolio and fund its turnaround. While the proceeds could strengthen Intel's financial position and support strategic investments, the company's recovery depends on regaining data center market share and achieving foundry profitability. This divestiture could be a significant but not definitive catalyst for Intel's stock.
