INTEL shares sank nearly 28 per cent on Friday and were set for their worst day ever after the company suspended dividend and slashed workforce to fund a costly turnaround for its chip-making business.
The company was set to lose about US$35 billion in market value as its disappointing forecast and planned 15 per cent job cuts raised worries about its ability to catch up with Taiwan’s TSMC and other chipmakers.
“Intel’s issues are now approaching the existential in our view,” Bernstein analyst Stacy Rasgon said.
He said there would be “going concern” talks in other circumstances, but Intel could add US$40 billion in cash to its balance sheet by the end of 2025 through the moves, as well as subsidies and partner contributions.
“Intel will survive (in some form) to continue the fight,” Rasgon said.
Shares of other chip firms also fell, with Arm, Micron Technology, GlobalFoundries and US-listed shares of TSMC trading down between 2.8 per cent and 6.7 per cent.
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Wall Street darling Nvidia was 2 per cent lower after a report about an investigation by the US Department of Justice.
‘Forgotten horseman’
Santa Clara-based Intel was once the world’s leading chipmaker, with the “Intel Inside” logo a valuable marketing feature on personal computers in the 1980s and 90s.
Part of the dotcom era’s Four Horsemen – along with Cisco Systems, Microsoft and Dell – Intel’s stock market value peaked at nearly US$500 billion in 2000 before slumping that year and never fully recovering.
It continued to dominate in hefty PC chips, but was caught off foot by the launch of Apple’s iPhone in 2007 and other mobile devices that demanded lower power and less pricey processors.
If Friday’s losses hold, Intel’s market value would fall to about US$90 billion, equivalent to less than 5 per cent of Nvidia’s and about 40 per cent of Advanced Micro Devices’, the two PC chipmakers it heavily dominated for decades until recently.
“Eliminating the dividend may pressure the share price because it will knock Intel out of any ETFs, indices and fund strategies that only include dividend payers,” said Michael Schulman, chief investment officer of Running Point Capital.
“Intel has been one of the forgotten horsemen of technology the last couple decades. Never overtaking its year 2000 highs and struggling to get earnings back to where they were before the AI revolution.”
Its server chip business has been taking a hit for several years as companies prioritise spending on AI chips, where it lags rival Nvidia, which has become one of the world’s most valuable firms thanks to booming demand for its processors.
To regain its manufacturing edge, Intel is planning to spend US$100 billion across four US states to build and expand factories after securing US$19.5 billion in federal grants and loans.
The company told investors on Thursday it remains “comfortable” with those CHIPS programme plans.
The company’s turnaround plan depends on persuading outside companies to use its manufacturing services. But analysts say the push to energise the business could take years. For now, it is increasing Intel’s costs and pressuring profit margins.
Intel’s unesecured bond that offers a coupon of 5.15 per cent and is due in 2024 was trading 20 basis points wider on Friday, way above bonds of other companies, according to investors. Its 5.6 per cent unsecured bonds due in 2054 also widened by 17 basis points.
The higher trading volume compared to other bonds was due to Intel’s recent earnings report, bond market participants said.
“That’s weighing on bond trading,” said Dave Novosel, senior investment analyst at corporate bond research firm Gimme Credit. “They see that they may need to come back to market for a modest amount of debt.”
At least 14 analysts lowered their price target on Intel’s stock, pushing down the median PT to US$28. Its shares were trading at a more than 11-year low of US$20.6 on Friday.
The stock has a 12-month forward price-to-earnings ratio of 18.62, compared with Nvidia’s 32.15 and AMD’s 29.42. REUTERS
