Intelthe US manufacturer of microprocessors, announced last Wednesday a significant cut in its dividend figures with the aim of being able to save cash in the midst of the economic slowdown suffered by the technology sector, and specifically, given the decrease in demand for its chips used in personal computers and data centers.
The board of directors of the company undertakes the largest cut experienced in the last 16 yearssince upon reviewing their dividend policy they have reached the conclusion that it is best to cut the amount of the quarterly dividend next June to $0.125. This translates into 66% less than the $0.365 that the company has announced that it will distribute next March.
Intel is forced to make this decision with the aim that the company can achieve a better positioning and acquisition of value in the long term, being the result of a long deliberation. Only in this way will it be possible to support the critical investments necessary to execute transformation in this period of macroeconomic uncertainty that affects all companies in the technology sector.
Intel is struggling to catch up with rivals like the Taiwan Semiconductor Manufacturing Company with lower margins. In fact, its CEO, Pat Gelsinger, assured that they would undertake investment reductions estimated at tens of billions of dollars in new equipment and facilities. Macroeconomic conditions have been deteriorating and Intel’s available capital has been shrinking, even below its limits.
Gelsinger now expects the net capex intensity and that amount invested to generate income to be profitable, although around 30%. Very low figures if we compare them with his previous expectation of 35%.
The causes
Intel has ratified its expectations for the first quarter of 2023 where it intends to reach some revenue between $10.5 and $11.5 billionwith a gross margin of 34.1%. Earnings per share of $0.80 is also expected.
Along these lines, the corporate credit manager, Monika Erickson, argues that Intel’s dividend cut stems from problems in its business model, such as the loss of its market share compared to its main competitors. Nonetheless, its shares only fell around 1%after at the beginning of the year they rose in a 3%.
All this is the consequence of a series several negative quarters for the companywhere the market share compared to rivals of the size of Advanced Micro devices, being forced to assume higher costs to build new chip manufacturing facilities. This is in addition to the decline in the sale of computers after the pandemic.
short term goals
The fact that you are committed to improved financial flexibility will be part of your IDM 2.0 strategy to maintain momentum while rebuilding their technological strength, optimize their cost structure and show at all times a full transparency to those who bet on it.
Intel intends to generate $3 billion in cost savings (2,814 million euros) in 2023 until reaching an annual savings goal of between 8,000 and 10,000 million dollars (between 7,503 and 9,379 million euros) for 2025. In this sense, workforce adjustment measures are included. According to David Zinsnerthe company’s chief financial officer, his goal is affordable.
Zinsner himself argues that short-term cash and capital outlays will continue to be undertaken prudently, laying the foundations of operating leverage and a free cash flow growth when we manage to get out of this period of large investments.
