Intel on Wednesday said that its board of directors had reset its dividend policy to reduce quarterly dividend payments in a bid to maintain spending on new manufacturing capacity that is set to be deployed in the coming years, something that the company considers critically important. The decision is meant to ensure that the company will have enough financial flexibility amid dropping revenue and profits.
Starting from June 1, 2023, Intel will pay $0.125 per share quarterly on the company's common stock, which means that the company will pay investors $2 billion instead of $6 billion this year. The company has reconsidered its dividend policy for the first time since 1992 amid major challenges that it faces in the short term and long-term future.
Intel said on Wednesday that it would prioritize investment in strategic capital and alter the timing of near-term capacity expansion in response to lower demand for its products in the short term. Essentially, this means that Intel will prepare for future expansions (i.e., build fab shells) and delay procurement of certain wafer fab equipment if possible.
"Prudent allocation of our owners’ capital is important to enable our IDM 2.0 strategy and sustain our momentum as we rebuild our execution engine," said Pat Gelsinger, CEO of Intel. "We remain on track to deliver five nodes in four years and continue to expand the IFS (Intel Foundry Services) customer base."
In recent years Intel has lost its manufacturing technology leadership to TSMC due to overly aggressive goals with its 10nm fabrication process that led to major delays for high-volume manufacturing. These delays and management missteps led to delays of major products, which is why Intel lost some of its datacenter CPU performance leadership to AMD.
After Pat Gelsinger became chief executive of Intel in 2021, he introduced the company’s IDM 2.0 strategy that is meant to bring back product and process technology leadership back to Intel. Under the new strategy, Intel plans to aggressively introduce new process technologies, expand its manufacturing capacity to offer foundry services to other companies, and outsource some of its production to contract chipmakers when and if it makes sense.
But modern process technologies are expensive to develop, which is why Intel needs to produce more chips — including chips for others — to invest enough in new nodes. As a result, IDM 2.0 requires a lot of capital — tens of billions of dollars over the next few years — as Intel needs to ensure that it has enough capacity for its own products as well as for its foundry customers. To ensure that it has enough capital to build out required capacity, Intel introduced its Semiconductor Co-Investment Program (SCIP) — though so far the latter has generated only one major deal.
Due to soft demand for PCs and lower margins of its datacenter division, Intel's revenue and profits suffered major declines in the recent quarters and are unlikely to rebound this year. Therefore, Intel needs to reduce all of its spendings, including dividend. Intel's abilities to invest declined and now the company is looking at around $20 billion CapEx in 2023.
Intel's management re-emphasized today that the company was on track to 'launch' the next generations of its client and server processors in 2023 and 2024.
"We are well into the ramp of 13th Gen Intel Core and 4th Gen Intel Xeon Scalable processors, and we look forward to the launch of Meteor Lake and Emerald Rapids in 2023 and Granite Rapids and Sierra Forest in 2024," said Gelsinger.
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Anton Shilov is a Freelance News Writer at Tom’s Hardware US. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.
Didn't they just get guaranteed 20+ billion dollars from taxpayers through the CHIPS act? Is there any compensation to stock holders for reduced dividends? No, of course not.Reply
Years late, but it's good to see they can still prioritize the company's future, to some degree.Reply
That was meant to fund investments in fab capacity - not a windfall for their investors!helper800 said:Didn't they just get guaranteed 20+ billion dollars from taxpayers through the CHIPS act?
Their stockholders should be glad they're still getting any dividend, at all! IMO, dividends should be tied to profits. When you extract resources from a company that's losing money, that's a bet against its future, which is not what investing is supposed to be for.helper800 said:Is there any compensation to stock holders for reduced dividends? No, of course not.
We need to bring sanity to the dividend culture, on Wall St. We love to blame foreign governments for destroying our industries, but we fail to consider the role of their own investors.
If the game was, who can lose $11 billion in market cap the quickest.Reply
Intel would be killing it!
February 15rd: $118B
February 21nd: $107B
Market cap doesn’t mean that much don’t make more out of it than it is.Reply
look at how much Tesla lost in market capitalization, and it doesn’t mean anything because their profits are skyrocketing to this day and beyond
they made more money than everybody per vehicle they make the most and they’re stealing tons of BMW and Mercedes buyers. So don’t place too much value on market capitalization.
Wall Street investors are insane and their opinion doesn’t mean anything to me. They will be making plenty of money when everything is spun up
Mark Zuckerberg saw his net worth drop $30 billion in one day. $11 billion over a week by a company the size of Intel isn't even newsworthy.derekullo said:If the game was, who can lose $11 billion in market cap the quickest.
Intel would be killing it!
February 15rd: $118B
February 21nd: $107B
bit_user said:That was meant to fund investments in fab capacity - not a windfall for their investors!
Their stockholders should be glad they're still getting any dividend, at all! IMO, dividends should be tied to profits. When you extract resources from a company that's losing money, that's a bet against its future, which is not what investing is supposed to be for.
We need to bring sanity to the dividend culture, on Wall St. We love to blame foreign governments for destroying our industries, but we fail to consider the role of our own investors.
Dividends are tied to profits. In this case, it's past profits that the company has not yet paid out (retained earnings).
Over the short term the value of a stock doesn't mean much about how well the company is being run.Reply
The stock price on a perfectly run company can be too high and stock in a company in shambles can be a value purchase.
Well reasoned dividend cut is probably a sign of management confidence. Self-funding the investments they think are needed rather than asking for more outside capital or borrowing.
helper800 said:Didn't they just get guaranteed 20+ billion dollars from taxpayers through the CHIPS act? Is there any compensation to stock holders for reduced dividends? No, of course not.
Yes, They own the value produced and represented in the company so any reduction in dividend will reflect in increased stock price and result in stock appreciation. In short, They will own part of a more valuable company.
For the stock holders getting paid in stock appreciation s rather than dividends is often advantagous from a tax perspective.
In Pat we trust.Reply