Just yesterday, we talked about a tech giant — Oracle (NYSE: ORCL) — that’s having a small renaissance… Well, Intel (NASDAQ: INTC) is doing the opposite of that.
The stock has lost a third of its value since the end of July and roughly 60% this year. The longtime stalwart is even in jeopardy of losing its place in the Dow Jones Industrial Average after 25 years. Nvidia waits in the wings to take its place.
What Happened to Intel Stock
Intel has been struggling for a while, but its issues erupted into a full-on meltdown after its latest earnings report was released in August.
Intel reported a 1% drop in revenue ($12.8 billion). That was well below analysts’ projections and a fraction of the sale it was generating just a few years ago.
The forecast for the current quarter was just as bleak — between $12.5 billion and $13.5 billion, compared with the analyst consensus of $14.38 billion.
Intel’s profit was a paltry $0.02 per share. It suspended the dividend it’s paid since 1992. And it’s laying off 15% of its workforce about 110,000 people.
Much of this is attributable to the astronomical rise of AI. Whereas major competitors like Nvidia, AMD, and Taiwan Semiconductor have reaped the spoils of the latest tech gold rush, Intel has languished behind, losing business and customers.
Most recently, Intel lost its bid to design and fabricate Sony’s PlayStation 6 chip to AMD and TSMC. That contract could have pumped $30 billion into Intel over the course of the contract, two of the sources familiar with Intel’s internal projections told Reuters.
Other contract losses have just been unlucky. Intel cut its sales expectations in May after the U.S. government revoked its license to supply chips to China’s Huawei Technologies. That was the result of the Biden administration’s effort to shore up national security risks.
In addition to the job cuts and dividend suspension, Intel is considering a broad range of options to cut cost and raise capital. Some of the efforts are relatively mundane — scrapping employee perks like coffee stations, company cars, and phone plans. And then there are more drastic options, like spinning off or selling business units.
For example, Intel’s stakes in MobileEye (NASDAQ: MBLY) and Arm (NASDAQ: ARM) could be jettisoned.
Intel is also considering a spinoff of its Foundry manufacturing unit. Foundry posted a 4% increase in revenue ($4.32 billion) in the second quarter. However, the division’s net loss has deepened to $2.8 billion — up from $1.9 billion in Q2 2023 and $2.5 billion in Q1 2024 — as it has struggles to compete with TSMC.
Separating the manufacturing businesses from product design could make it more competitive. And the Commerce Department is reportedly encouraging Nvidia and Apple to support domestic chip manufacturing by contracting with Intel rather than TSMC for production.
The Biden administration also signed a preliminary agreement to provide Intel with as much as $8.5 billion funding through the CHIPS and Science Act. And it could be eligible for as much as $11 billion in federal loans under the same legislation.
Intel CFO David Zinsner said at a recent investor conference that Foundry is in talks with 12 potential customers and poised to generate "meaningful" revenue by 2027.
Maybe it will. But it’s unclear what Intel itself will look like by then. All we know right now is that it’s not looking good.
Fight on,
Jason Simpkins
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