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.
