Stock prices of Intel drop - will the semiconductor giant recover?
Intel Faces Challenges Amidst Market Shift
In a significant turn of events, tech giant Intel has announced a layoff of 15,000 employees, marking a significant change in the company's workforce. This decision comes amidst a slump that has knocked more than $30 billion off Intel's market value.
The slump can be attributed to Intel's failure to capitalise on the boom in demand for mobile phone chips, a market it neglected due to its focus on PCs. The demand shift prioritises AI chips, a sector currently dominated by Nvidia.
Intel's net cash pile has been whittled away due to billions spent on share buybacks to boost earnings-per-share figures. Consequently, the company's room for maneuver is constrained by its debt, with net borrowings replacing a net cash pile that peaked in 2004.
To cut costs, Intel aims to save $10 billion next year. However, slashing investment may make regaining the technological lead from companies like TSMC in the field of artificial intelligence chips even harder.
In a bid to stay competitive, Intel has committed tens of billions of dollars to build new factories to make chips for other companies. Yet, the new factories have pushed up costs and hurt profitability, further exacerbating Intel's financial woes.
Intel's latest earnings show it lags behind companies like Nvidia and TSMC. The company is significantly behind in designing artificial intelligence chips, a sector where it needs to make "big investments" to catch up.
PC sales are falling, and demand for data centers is declining, adding to Intel's troubles. The US government's revocation of Intel's license to supply chips to Huawei Technologies in May has also impacted the company's revenue.
Despite support from the US government, it's increasingly hard to see how Intel will solve its underlying problem of falling revenue and margins. The main competitors of Intel, such as Nvidia and AMD, have been gaining ground and outperforming Intel in terms of profitability and technological leadership in recent years. Additionally, Arm, from which Intel's CEO recruited key personnel, plays a significant role in advanced chip design oriented towards emerging societal and technological needs.
Robert Cyran for Breakingviews supports Intel's decision to suspend the dividend, which it did for the first time in more than three decades. However, whether this move will be enough to turn Intel's fortunes around remains to be seen. Intel's stock slumped by 26% to a 15-year low on August 2, 2022, indicating a lack of investor confidence in the company's future prospects.
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