(New York, 13th) – Intel, America’s largest chipmaker, is grappling with a critical challenge that could determine its future. However, as a company considered “too big to fail,” Intel may find a lifeline in the U.S. government, according to Wall Street Journal columnist Dan Gallagher.
Intel’s second-quarter financial report sent shockwaves through the industry, revealing a sharp decline in sales in key markets and rising costs associated with its manufacturing transformation. In response, Intel has implemented drastic cost-cutting measures, including a 15% reduction in its workforce, slashing capital expenditures for building and equipping production facilities, and suspending dividend payments. This marks the first time since 1992 that Intel has halted dividends, making it one of only three Dow Jones companies not to issue dividends.
The report triggered a mass exodus of investors, wiping out more than a quarter of Intel’s market value the day after its release. Since CEO Pat Gelsinger’s return in early 2021, when he first outlined the company’s transformation plans, Intel’s stock price has plummeted by 68%, while the S&P 500 has risen by 39% during the same period. Intel’s current trading price has now fallen below the company’s book value, a phenomenon not seen since at least 1981. This suggests that investors now value Intel at less than the worth of its physical assets and facilities.
Chip Sales Plummet, Data Center Business Suffers
One of Intel’s major challenges is the sharp decline in chip sales. The company’s once-thriving data center business has been particularly hard-hit as its server CPU market share is being eroded by AMD. Additionally, data center budgets are rapidly shifting toward NVIDIA GPUs, which power generative AI services. This year, Intel’s data center revenue is expected to be $12.6 billion, less than half of its peak four years ago.
The swift pivot toward AI spending caught Intel off guard, coming just as the company had embarked on an ambitious spending plan three years ago to catch up with semiconductor manufacturing rivals like TSMC. Wolfe Research analyst Chris Caso recently noted in a report to clients that Intel’s server-focused data center services have been overtaken by the AI spending it failed to capture.
Wall Street Divided on Intel’s Future
Wall Street analysts are divided on Intel’s path forward. Some believe the company must focus on reclaiming its leadership in product development, while others argue that Intel should concentrate on securing more major clients in the semiconductor manufacturing sector. However, neither approach offers a quick fix.
Despite the uncertainty, Intel’s strategic importance in a sector deemed crucial for U.S. national security cannot be understated. Caso emphasized that “given the sensitivity of U.S. semiconductor production, we doubt the U.S. government will allow Intel’s problems to become irreparable.” Over time, the U.S. government may emerge as Intel’s biggest supporter.
