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Investing.com -- Citi analysts believe Intel (NASDAQ:INTC) could significantly improve its profitability by exiting the foundry business.

According reports, Intel is reportedly exploring strategic options, including the potential sale of certain divisions.

While Intel has not commented on these reports, Citi suggests that exiting the foundry business could be a crucial move for the company's future.

Citi argues that Intel has a limited chance of becoming a profitable leader in the foundry space.

"We continue to believe Intel would be better off exiting the foundry business in the best interest of shareholders," Citi analysts wrote, citing the division's massive losses.

The foundry business, which lost $2.8 billion last quarter, is projected to lose at least $8.0 billion annually. In light of these setbacks, including reports that Broadcom (NASDAQ:AVGO) rejected Intel's 18A wafers, Citi believes the foundry division is dragging down the company's financial performance.

If Intel were to exit the foundry business, Citi estimates the company could see a substantial boost in both earnings and margins.

"We estimate if Intel exits the foundry business, the company could ultimately see EPS in the $3.00-$4.00 range and gross margins somewhere in the low-to-mid 50% range," Citi noted.

However, Citi advises that Intel should retain its CPU manufacturing operations, given the synergies with its CPU design.

The analysts believe Intel can still catch up with Taiwan Semiconductor Manufacturing Company (TSMC) by 2025 and shouldn't go fully fabless.

Citi maintained its Neutral rating on Intel with a $25 price target, concluding that while Intel may face challenges, a foundry exit could be a positive step for its shareholders.

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