Intel has revealed plans to separate its Programmable Solutions Group and take it public within three years.
PSG, which serves the Field Programmable Gate Array (FPGA) market and comprises the Altera business Intel bought for US$16.7bn in 2015, will operate as a standalone entity from the start of next year before an IPO over the next two or three years, the chipmaker said in a statement on Tuesday.
UBS analysts estimate the unit could be worth between US$25bn and US$30bn by the time of the IPO.
The move comes as Intel CEO Pat Gelsinger looks to unlock shareholder value after a long period of underperformance (though Intel shares have bounced 35% this year).
The separation of PSG follows last year's US$1.1bn Nasdaq IPO of Intel's advanced driving software unit Mobileye Global and the recent sale of a partial stakes in its IMS Nanofabrication business to Bain Capital and TSMC at a US$4.3bn valuation.
As with Mobileye, Intel will likely sell only a small slice of the business at the IPO while retaining a majority stake.
In an analyst call late Tuesday, Gelsinger said Intel also expects to bring in an external investor to “partner” with PSG next year, a process that would begin “fairly rapidly”.
The IPO would take two to three years to allow time for the unit to produce three years of standalone financials, he said.
“Obviously having an external investment partner, we’ll be working closely with them to help us to get to that point in time.
“So I’d say you should expect a fairly normal timeline for us to get this in shape for the IPO and with that, we do expect market conditions will dictate when and how we do it.
“We want to realize a good outcome for all of our shareholders as we do that but we think two to three years is a good general timeline for that.”
Sandra Rivera, the Intel executive who will run the standalone PSG, said the unit generated trailing 12-month revenue of US$2.9bn with “gross and operating profits well above Intel corporate average”. PSG is targeting 60% gross margins and 30% operating margins.
On its second-quarter earnings call in July, Intel said PSG had delivered record revenues for a third consecutive quarter and had already launched 11 of the 15 new products it expected to bring to market this year.
Though the FGPA end market is expected to grow at a strong 9% CAGR to US$11.5bn in 2027, PSG's financials are expected to normalize in the coming quarters as inventory-related Covid tailwinds dissipate, Intel executives cautioned on the call.
According to UBS, the unit's true revenue run rate is more likely around US$2bn a year.
“If we use US$2bn a year as a reasonable current revenue baseline once inventory/backlog is fully right-sized, assume 15-20% CAGR and assume a 2025 spin using 2026 revenue as the basis, we estimate the market could potentially value PSG at US$20bn-$25bn.”
Analysts have long viewed Intel's 2015 purchase of Altera business as a mixed success.
Morningstar analysts wrote in a recent report there was little evidence Altera had fared better under the Intel umbrella and had perhaps fared worse than rival Xilinx (since acquired by AMD).
For Intel, an IPO would bolster its weak balance sheet, which has come under pressure as Ebitda plummeted in recent quarters.
Intel is also facing a massive capex bill as it embarks on its strategy to significantly expand its foundry capacity in the US (what Intel calls its "IDM 2.0" strategy).
Though Intel appeared to overpay when it bought Mobileye for US$15.3bn in 2017 and last year’s IPO was smaller than initially hoped, the unit now sports a market cap of more than US$32bn.
Mobileye shares closed Tuesday's session at US$39.78, up from its October 2022 IPO price of US$21.00 but down from the US$42.00 mark at which Intel sold US$1.6bn of stock in a follow-on in June.