Intel’s First Dividend Cuts Since 2000 Shows a Company in Trouble
- Intel has announced its first dividend cut since 2000.
- In its last quarter, Intel posted a net loss of $644m.
- Intel shares have dropped in price by almost 8% since the start of the week.
The world’s largest semiconductor manufacturer looks like it could be in a spot of trouble after announcing the first cuts to its dividends since the year 2000. The company’s CEO said that the decision for a 66% reduction to payouts was not taken lightly, but investors are taking note of Intel’s sliding dominance. With its dividends one of the more attractive features of Intel shares, its price has dropped by almost 8% since the start of the week.
What’s happening with Intel?
The announcement comes just weeks after the company already implemented significant cost cuts across the board after a lackluster quarter. Its most recent quarterly guidance will apparently remain unchanged despite the cut. Last quarter however, the company posted a historic net loss of $664m – prompting investor concerns. Intel’s yield now sits at 1.9%, down from 5.6% before the cuts.
The chipmaker has also been struggling to move a large portion of its chip inventory, as PC demand began to slide after the pandemic. Additionally, Intel has faced increasing competition from competing chipmakers such as AMD and Nvidia – who have been navigating the post pandemic landscape more successfully. With its share price down by more than 60% since its all-time high in 2021 – its shortcomings are starting to show.
What happens now?
Intel has stated that it hopes to save $3bn over the course of 2023 with its cost cutting efforts. Whether that will be enough to save the ship remains to be seen, but it plans to spend around 30% of its revenue this year – after dropping this down from 35%. Intel now expects its first quarter revenue this year to sit between $10.5bn and $11.5bn, with a loss of $0.15 per share.
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Intel pushes further into foundry servicesIntel is out to change the global manufacturing makeup and has made a billion dollar deal to meet its goal.
- Intel just made a $30bn funding partnership deal with Canada’s Brookfield Asset Management to fund the chipmaker's state-of-the-art Arizona factory plans as part of its hyped up chip foundry expansion, which hopes to shore up US manufacturing power without bringing down the balance sheet.
- It’s largely part of a grand plan to take back market share from growing competitors like Samsung and TSMC. Both are based in the Asia-Pacific region, which is responsible for around 75% of all semiconductor manufacturing – a fact that Intel and the US are equally keen to change. Given Intel is trading around a five-year low, investors are prolly excited for the shakeup.
- This is likely just the start of the funding arrangements we’ll soon see in the semiconductor industry as chip makers look to build new production plants to make the most of the new CHIPS Act, which included $52bn in incentives for the semiconductor industry in the hopes that it’ll help tackle the severe chip shortage and supply crunches.
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PCs pull down the balance sheetIntel’s latest earnings show a perfect storm of macroeconomic, competitive, and execution challenges, and investors ain’t sticking around to get caught in the rain.
- Intel shares sank 8.5% on Friday to hit their lowest levels since September 2017 after the chipmaker missed on both ends of Q2. Intel’s revenue declined 22% YoY and missed estimates by 14% at $15.32bn, the company’s biggest top-line miss since 1999, and it ended the quarter with a $454m net loss compared with a net income of $5bn the same time last year.
- People are spending way less on PCs, and Intel is feeling the multi-billion dollar impact of that. After the segment saw incredible gains in the face of covid but, since then, both businesses and individual consumers have slowed down their computer purchasing massively – an issue that even companies like Apple are struggling with.
- “We do think we’re on the bottom”, says CEO David Zinsner, so at least there’s that. However, that doesn’t mean a top is coming any time soon, with Intel lowering its FY forecast fairly dramatically, blaming not only a “sudden and rapid decline in economic activity” but also its own issues with execution.
Slejven Djurakovic / Unsplash
Are PCs a thing of the past?Intel manages an earnings beat despite getting dropped by Apple, but disappointing guidance throws a wrench at the motherboard.
- The stock lost 4% in extended trading on Thursday despite beating on both ends in Q1 with EPS of $0.87 on revenues that grew 7% YoY to hit $18.35bn.
- Chip sales are still hurting after Apple dropped the hardware for its homegrown M1 chip – shares have lost a fifth of their value since. Desktop PC and notebook sales are declining thanks to low demand in consumer markets, worsened by sky high inflation.
- The chip shortage is also settling in. The company sees the drought lasting until 2024 at the least, and forecast disappointing guidance of $18bn in revenues for the current quarter. Analysts are already cautious about slowing sales in the PC market, and earnings prompted a bunch of downgrades.
Kyle Williamson / Unsplash
Intel infiltrates crypto miningTraditional chipmakers are finding themselves at the center of the crypto revolution, and Intel is determined to stay ahead of the game.
- Intel just unveiled a new Bitcoin mining chip called the “Intel Blockscale ASIC” chip, and it boasts higher efficiency than most other models on the market like Bitmain and MicroBT.
- Blockscale ASIC has got a new ESG focus and aims to help firms that mine Bitcoin, which is infamous for its heavy environmental impact. Intel plans to help it stay on the right side of global warming history while scaling up hash rates – and orders are piling up.
- Intel shares lifted 2.27% on Monday to break a three-day losing streak, but prices are still down nearly 10% YTD after a war and inflation driven sell-off this year.
Intel sets its sights on EuropeIntel is diving head first into its European operations as semiconductor companies look to build new homes for themselves.
🔍 Key points:
- Intel is building a “mega site” in Germany to boost its chip production goals, pouring over €18bn ($20bn) into the two factories that it will name “Silicon Junction”, with production planned to start in 2027.
- The tech giant will spend over €80bn ($89bn) on its European operations in the next decade, which will also include a €17bn ($18.7bn) commitment to double capacity at its existing factory in Ireland.
- It seems chip companies are saying goodbye to Asia and going on the hunt for a new hub after logistics and supply chain constraints continue to get worse – Apple supplier Foxconn is in talks to build a $9bn factory in Saudi Arabia and start moving its manufacturing away from Taiwan and China.
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Intel falls behindIntel’s server chip faces a delay as the semiconductor company says it needs to work on catching up to competitors.
- Prices plunged down over 5% on Friday to hit their lowest levels since November 2020 – the stock is now down 12% since its disappointing earnings on January 26.
- It has delayed the release of its 2023 server chip to 2024, saying it needs to focus instead on its transformation into a company that manufactures chips for other semiconductor companies – the delay is a big deal because it was set to be the first of its chips to use ultraviolet lithography, which would help it compete with firms like TSMC (TSM).
- Global semiconductor sales topped half a trillion dollars in 2021 for the first time, up over 26% y-o-y, and that number is expected to “rise significantly” this year according to the Semiconductor Industry Association (SIA) – so Intel will need to be at the top of its game.
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Intel goes shoppingIntel is paying a “hefty premium” for its latest acquisition in the hopes that it’ll accelerate its foundry business.
- Intel is buying Tower Semiconductor (TSEM) for a whopping $5.4bn, representing a premium of nearly 60% on the Israeli chip company’s last closing price – its shares popped nearly 50% in after hours trading on Monday.
- Tower will bring customers and expertise in the chip-foundry industry (the contract manufacturing of semiconductors for other companies), which Intel wants to get into instead of only following its own chip designs – it’s hoping the acquisition will make it a formidable rival to Taiwan Semiconductor Manufacturing Company (TSM).
- It’s all part of CEO Pat Gelsinger’s plan to get Intel back on track, especially after its recent disappointing earnings, and the company is also focusing on building new factories and modernizing the old ones to restore its lead in the chip tech biz.
Gabrielle Ribeiro / Unsplash
Intel wants to be part of the crypto mining clubIntel’s new chip is targeting cryptocurrency miners as it tries to cash in on the crypto boom.
- Intel has released its own crypto chip, which is described as a “blockchain accelerator” and focuses on sustainability as a core tenet – it’s the first of what's expected to be a long line of energy-efficient accelerators.
- And it’s proving popular already. The chip has been pre-ordered by Jack Dorsey’s Block (SQ) and Argo Blockchain (ARBK) for when the chip is launched later this year.
- Blockchain focused chips are set to soar as the Metaverse becomes the market’s latest buzzword, and with lawmakers zeroing in on crypto’s energy problem, chip makers with a sustainable focus will likely thrive.
A man with a planIntel’s expectation-beating Q4 wasn’t enough to counteract doubts about the CEO’s margin-pressuring plan.
- Intel posted record quarterly revenue of $19.5bn, healthily beating estimates on both ends with EPS of $1.09.
- CEO Patrick Gelsinger thinks manufacturing capacity should be top priority in the face of a semiconductor shortage, but escalating capital buildouts mean pressure on profit margins. Gelsinger expects a margin recovery at the end of a five year window he outlined last quarter – will investors stick around?
- The stock slid 3% after hours as investors contemplated the report, not helped by a warning that supply constraints will continue through 2022.
Illustration by TradingView
Biden backs a big dogIntel is taking its chipmaking talents to Ohio and gets a boost of confidence from Biden.
- Intel is investing $20bn into two new chip making factories in Ohio, with plans to make it “the largest silicon manufacturing location on the planet".
- The investment was hailed as “historic” by Biden, who used it to try and help push through a $52bn chipmaking bill that he wants to get approved by Congress.
- It’s the latest in a series of new initiatives from Intel, which last year said it’d spend $100bn on U.S. facilities in an effort to keep up with AMD (AMD) and Taiwan’s TSMC (TSM).
The White House
Intel tries its hand at cryptoIntel is offering a brand new Bitcoin chip, hoping it’ll be accepted as an entry fee for the crypto club.
- Intel is getting ready to release a “Bonanza Mine” chip in February, which will be entirely focused on “ultra-low-voltage energy-efficient Bitcoin mining”.
- It might need a new crew after the Big Tech bunch seemed to relegate it to the edges after years of friendship in favor of new AMD (AMD) based in-house chips.
- It’s not giving up on its original graphics cards, having recently placed an order worth over $320m with ASML for some high tech equipment – however, it will not be putting mining limits on other GPUs, unlike Nvidia (NVDA).
Dhruvansh Soni / Unsplash
Some Intel on the MetaverseThere’s been a lot of Metaverse hype recently, but Intel thinks we may be jumping the gun...
- Intel has warned that today’s computers are not strong enough to power the Metaverse, saying we would need a 1,000-times increase in computational ability to realize the dream.
- Meta’s (FB) Horizon World is currently limited to 20 participants in one space because of that very reason, so they may have a point.
- That doesn’t mean it won’t happen though. Intel is working on a series of GPU chips for 2022 that will essentially help computers tap into the power of other computers, helping to power the Metaverse by combining computational strength.
Taylor Vick / Unsplash
Intel drives a new ventureIntel gets investors revved up with plans to list shares of its self-drive business, driving the price up 3.53%.
- Intel wants to take Mobileye public in 2022 at an estimated $50bn valuation.
- Intel paid $15.3bn for the Israeli self-driving company in 2017 in a bid to compete with chipmaking competitors like Nvidia (NVDA) and Qualcomm (QCOM), which have both entered the self-drive game.
- It’s hoping to “unlock value” for shareholders, who are losing faith in CEO Pat Genslinger as they’ve watched share prices steadily sink in the few months since he took over.
Intel isn’t staying on top of the shortageIntel tumbles in after-hours trading following the release of its third quarter earnings, which beat earnings estimates but are brought down by its struggling PC business in the face of a components shortage.
Intel reported earnings per share of $1.71, beating expectations of $1.11, but fell short on revenue after bringing in $18.1 billion compared to the $18.24 analysts had forecast. The real disappointment for investors came from a decline in revenue from its struggling PC-focused computing group, which saw revenue sink 2% from the same period last year to $9.7 billion on the back of the global chip shortage that continues to damage the tech industry. While the company saw strength in its desktop unit as well as higher sales prices, it wasn’t enough to offset concerns for the future of the business. Further worry mounted on the fact that Intel warned of a decline in its free cash flow and gross margins over the next three years as the company heavily invests in research and development into new chip factories. Analysts are already keeping an eye on gross margins in light of Intel’s $20 million capital expenditure this year, part of which was dedicated to a new semiconductor plant. Chief Executive Pat Gelsinger said:
We are repositioning Intel for growth to be a long-term growth company. Near-term, we could have chosen a more conservative route with modestly better financials, but instead the board, the management team — and this is why I came back to the company — choosing to invest to maximize the long-range business that we have.
Regarding the ongoing chip shortage, Gensler added:
We're in the worst of it now, every quarter next year we'll get incrementally better, but they're not going to have supply-demand balance until 2023.
Susquehanna analyst Christopher Rolland, who has a $60 price target and a Neutral rating out on the stock, warned people to hold fire on their judgements and see what the company has in store for them at its product event later in October:
Note that just a few days later on October 27, Intel will also host an event to showcase its latest technologies and perhaps launch new products. Therefore, investors should prepare for potential increased volatility around these dual announcements.
The company also announced that its CFO George David will be retiring in May of 2022. Shares fell just over 8% in after hours trading.
Intel takes back controlIn the midst of the global semiconductor shortage, Intel plans to get ahead of the game with an investment of up to $95 billion into its own production facilities.
Intel is bolstering its semiconductor production facilities as the global chip shortage continues to ravage the tech industry. The company is building two new factories in Europe that are valued at around $95 billion, with the potential to expand that investment over the next decade to feed increasingly high demand for the component.
Jonas Svidras / Unsplash
Intel’s Pentagon winIntel lands a chip manufacturing deal with the U.S. as the global shortage has emphasized the need for greater domestic chip-making prowess.
The world has battled the worsening global chip shortage for months now, which has badly impacted sectors like the automobile, technology and defense industry. The Defense Department is taking steps to create a chip manufacturing ecosystem in the U.S. to avoid obstacles like this in the future – Biden’s 2022 budget includes a $2.3 billion investment into microelectronics, which are critical to national security – and Intel has won a contract from the Pentagon to partner on the project. Intel’s Foundry Services, which was launched earlier this year as an individual division to combat the exact same problem, will help with the first phase of a larger Defense Department plan, joining companies like IBM (IBM) and Synopsys (SNPS)in building a domestic chip design and production system.
The move will be a great testament to Intel’s chip-making power when it comes to competing against growing Chinese rivals in the space like Qualcomm and Samsung.
Prices lifted 2.35% on Monday in response.
Intel down despite strong resultsIntel releases its first earnings with new CEO Pat Gelsinger at the helm, and prices are down despite earnings that beat expectations and a raised annual forecast.
Intel posted $18.57 billion in adjusted revenue, flat from the same period last yea, and adjusted earnings per share of $1.39, compared to expectations of $17.9 billion in adjusted revenue and earnings per share of $1.39. Both numbers beat estimates, but prices still fell by almost 2% thanks to a large dip in data-center sales and the ongoing (and growing) concerns around a global chip shortage. Intel’s data-center group revenue saw a decline of more than 20% in the face of strong competition from the likes of Nvidia and Advanced Micro Devices.
Luckily, CEO Pat Gelsinger has a plan. Gelsinger – who moved over from VMware to take over as Intel CEO in February 2021 – announced in March that the company would invest $20 billion in new microchip manufacturing plants. Intel is building two new chip factories (fabs) in Arizona in an effort to combat the global semiconductor chip shortage that’s filling the tech and automobile industries with fear right now.
This is a pivotal year for Intel. We are setting our strategic foundation and investing to accelerate our trajectory and capitalize on the explosive growth in semiconductors that power our increasingly digital world
said Pat Gelsinger, who believes the chip shortage could stretch another two years at least.
Intel said last month that it was expecting earnings per share of $4 and $72 billion in revenue for the full year 2021, and in its earnings release raised that guidance to $4.60 per share and a sales guidance of $72.5 billion. The earnings come on the back of another win for Intel, who earlier in the day dodged a $3.1 billion patent trial. VLSI, which is a unit of hedge fund Fortress Investment Group, sued Intel in 2019 for infringing on patents with its “Speed Shift” tech, and sought a whopping $3.1 billion in damages. Which it didn’t get. That should help with those 2021 forecasts.
Gelsinger gets Intel back in the gameAs a part of its ambitious turnaround strategy (hello old logo, we’ve missed you), Intel is shelling out $20 billion to build two new factories in Arizona, as well as allowing other companies to use its chips, in a new bid to compete with rivals Samsung and Taiwan Semiconductor. Prices sink 3.28% on the news, but it’s a strong move for new CEO Pat Gelsinger.
The newly-appointed CEO is committed to getting the company’s mojo back - Intel used to be one of the 10 most valuable companies in the world, but the stock price is currently lower than it was at its peak in 2000. Gelsinger is looking to rectify that, with an all-singing, all-dancing turnaround plan that includes a commitment to building the majority of its own chips.
Intel is back. The old Intel is the new Intel,
Gelsinger said in a March 23 virtual presentation.
We're going to be leaders in the market and we're going to satisfy the new foundry customers, because the world needs more semiconductors and we're going to step into that gap in a powerful and meaningful way.
After the big semiconductor chip shortage earlier this year, which saw remote working eat up all the available chips for PlayStations and Chromebooks (no seriously – Ford had to literally shut down a plant because of a lack of chips), the increased ability to manufacture chips and compete with other companies is key to changing up Intel’s failing fortunes.
The pandemic has also pushed the firm into ramping up outsourcing, and it’s even talking with Samsung about making some of its chips while focusing its new production capabilities. Going forward, Intel wants to be more open to “co-opetition” (as they call it), finding other ways to partner with, and outsource to, traditional rivals. Intel will also produce chips for other companies to use with Intel Foundry Services – kind of a surprise coming from a business that has always differentiated itself by being both the designer and the manufacturer.
The news comes just a day after Intel stock rose 2.93% following the announcement of the latest 3rd Gen Intel Xeon Scalable processors.
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