Intel shares fall 26% as recovery woes deepen, Telecom News, ET Telecom

Authors: Noel Randewich and Arsheeya Bajwa

Intel shares fell 26% on Friday, their worst day since 1974, after the chipmaker suspended its dividend and cut jobs to fund a costly restructuring following the loss of its once-dominant global position.

The company’s market value fell by more than $30 billion after it issued disappointing forecasts and announced a 15% job cut, deepening concerns about its ability to catch up with Taiwan’s TSMC and other chipmakers.

The company’s shares ended the day at $21.48, their lowest since 2013.

“In our view, Intel’s problems are approaching existential levels,” said Stacy Rasgon, an analyst at Bernstein.

Rasgon said that with these actions, as well as grants and support from partners, Intel could add $40 billion in cash to its balance sheet by the end of 2025.

While Intel’s production problems are unique to the Santa Clara, California-based company, shares of other chipmakers also fell for a second straight day.

Weak jobs data on Friday sparked a sharp rise in fears that the U.S. economy is slowing, prompting investors to bet that the U.S. Federal Reserve would cut interest rates by half a percentage point in September, rather than 25 basis points as expected before the data was released.

“The excitement around AI and large-cap technology is coming back down to earth. The future is still bright, but the truth is investors got a little too excited and we’re seeing once again what can happen when everyone gets on the same side of the boat,” said Ryan Detrick, chief market strategist at The Carson Group.

Companies that sell equipment used in factories run by Intel and other manufacturers fell sharply, signaling investor concerns about the pace of future investment in manufacturing infrastructure. Applied Materials, ASML Holding and KLA Corp fell about 8%.

The PHLX index of companies fell 5.2%, bringing the loss this week to almost 10%.

Nvidia shares are down nearly 2%, while shares of the leading AI processor vendor are down more than 20% since their record close on June 18.

Ross Mayfield, an investment strategies analyst at Baird, said growing recession fears and quarterly reports from Amazon and Alphabet that failed to impress Wall Street had fueled doubts about the future pace of AI investment.

“There’s a broader question about whether these AI capex projects will be able to continue to grow in a broadly vertical or exponential manner, especially if the macroeconomic environment softens,” Mayfield said.

“THE FORGOTTEN RIDER”

Intel was once the world’s leading integrated circuit manufacturer, and the “Intel Inside” logo was a valuable marketing feature for personal computers in the 1980s and 1990s.

Part of the “Four Horsemen” of the dotcom era (along with Cisco Systems, Microsoft, and Dell), Intel’s stock market value peaked at nearly $500 billion in 2000 before plummeting that same year and never recovering.

It continued to dominate the market for high-performance PC processors but was caught off guard by the introduction of the Apple iPhone in 2007 and other mobile devices that required lower-power and cheaper processors.

Intel, now valued at about $91 billion, is less than 5% of the value of Nvidia and about 40% of the value of Advanced Micro Devices, two makers of PC chips it dominated for decades until recently.

“Intel has been one of the forgotten horsemen of technology over the past few decades – it never reached the highs of the 2000s and is struggling to get profits back to pre-AI revolution levels,” said Michael Schulman, chief investment officer at Running Point Capital.

The server chip business has been losing money for several years as companies prioritize AI chip investments, lagging behind Nvidia, which has become one of the world’s most valuable companies thanks to growing demand for its processors.

To regain its manufacturing advantage, Intel plans to spend $100 billion to build and expand factories in four U.S. states, after securing $19.5 billion in federal grants and loans.

The company told investors on Thursday that it remains “pleased” with its CHIPS program plans.

Intel’s turnaround plan relies on persuading outside companies to use its manufacturing services. But analysts say the push to revive the business could take years. For now, it’s driving up Intel’s costs and putting pressure on profit margins.

Intel’s unsecured bonds, which pay a 5.15% coupon and mature in 2024, were trading 20 basis points higher on Friday, well above those of other companies, according to traders. Its 5.6% unsecured bonds due in 2054 also widened by 17 basis points.

Bond market participants said the higher trading volume compared to other bonds was due to Intel’s latest earnings report.

“It’s weighing on the bond market,” said Dave Novosel, senior investment analyst at corporate bond research firm Gimme Credit. “They see they may have to go back to the market for a modest amount of debt.”