Intel Stock Plummets 28% in August Amid Ongoing Challenges

Why Intel Stock Plunged 28% in August | The Motley Fool

Shares of Intel (INTC -8.80%) took a dive last month primarily due to a disastrous second-quarter earnings report that included subpar results, disappointing guidance, the elimination of its dividend, and a restructuring plan that includes laying off at least 15% of its workforce. The news undermined any hope that Intel was making progress on what was already supposed to be a turnaround. Later in the month, the company lost a key director, who dismissed the company's slow-footed approach to the chip sector and said the company was unwilling to take risks. On the last day of the month, Intel got a reprieve after Bloomberg reported that the company was looking into potential strategic options, including separating the manufacturing business from the core chip-design operation. According to data from S&P Global Market Intelligence, the stock finished August down 28.2%. You can see its performance in the chart below. It's hard for a supposed blue-chip stock like Intel to deliver as much bad news as the chipmaker did in a single quarter, and the upshot of the report is that the company is floundering at a key moment in its industry with AI demand soaring. First, the company's second-quarter results missed the mark as it continues to be hamstrung on the bottom line by losses in its foundry division, and growth remains sluggish in core business segments. Revenue in the quarter fell 1% to $12.8 billion, and adjusted earnings per share came in just $0.02, down from $0.13 in the quarter a year ago. Third-quarter guidance was also underwhelming, with revenue of $12.5 billion to $13.5 billion, implying a decline of 8% at the midpoint. It also forecast an adjusted loss per share of $0.03. In addition to the weak results and guidance, the decision to eliminate its dividend turned off investors, though it makes sense for cash conservation reasons. Finally, layoffs can sometimes please Wall Street, but in this case, the news that it was cutting 15% of employees was just another sign that the business is in disarray. Later in the month, the company delayed its Intel Innovation conference and it also lost a key director. Investors seem encouraged that the company is considering a potential break-up plan or cutting back on capital expenditures, but no announcement has come from the company on that, so it seems speculative right now. Additionally, the prospects of the stock being removed from the Dow Jones Industrial Average have significantly increased. At this point, it's going to take a lot of work to turn around the business and rehabilitate the stock, and investors could easily run out of patience again.

Sorry, Intel Doesn't Deserve the Benefit of the Doubt | The Motley Fool

Talk of "exploring strategic options" drove a relief rally in the chipmaker's stock, but nothing has changed about its business. Intel (INTC -8.80%) shares popped by 9.5% on Friday after Bloomberg reported that the chipmaker was considering strategic options after the stock's collapse on a second-quarter earnings report that fell short of expectations. Its shares plunged by 26% on Aug. 2 after the company posted disappointing results, gave an underwhelming forecast, eliminated its dividend, and announced a restructuring that included plans to cut 15% of its workforce. The news and the market's response prompted a round of introspection at the chipmaker that has led, not surprisingly, to the company seeking help from investment bankers. Intel is now working with Goldman Sachs and Morgan Stanley as it weighs a range of options that includes separating its chip manufacturing business from its product-design business, pulling back on new factory openings and expansions, and even a possible sale or merger. The company plans to present a range of options to the board in September. Investors often cheer announcements about troubled businesses exploring their strategic options, but that phrase usually refers to a potential sale of the company. That would be all but impossible for Intel. Even so, it's rare for a stock to jump on that kind of news as much as Intel did on Friday. Investors are clearly hungry for anything that can be construed as good news for the ailing chipmaker's stock, and if you squint hard enough, you can imagine how some of these strategic shifts could boost the shares. Intel's chip-making foundry operation is a money pit, for example, and cutting back on expansions or spinning off the business altogether could help stem losses or unlock value in the more successful chip-design business. Of course, doing that would fly in the face of everything Chief Executive Officer Pat Gelsinger has promised recently -- turning the foundry business into a profit machine seems to be the linchpin of his strategy. For now, the discussions cited by Bloomberg are just talk, and buying the stock based on that talk seems premature at best, and naive at worst. What's gotten less attention during the past week from investors is the only real piece of news to come out of Intel since the earnings report: It just lost one of its most valuable directors. Lip-Bu Tan, a veteran of the semiconductor industry, quit the board in frustration at Intel's "bloated workforce, risk-averse culture, and lagging artificial intelligence strategy," according to Reuters. The departure of Tan, who once led chip software company Cadence Design, leaves the board without an important source of technical expertise; most of Intel's board members hail from outside the semiconductor industry. Additionally, Intel's plans to cut more than 15,000 jobs seem to have created a bit of a political stir. The federal government has promised the company nearly $20 billion in grants and loans to build new chip factories in the U.S. Earlier in the week, U.S. Senator Rick Scott (R-Fla.) asked Gelsinger for more information on the company's layoff plans, saying the government should "protect taxpayer dollars from going to companies that could not meet high standards for U.S. manufacturing and job creation." Any sign that Washington might revoke or cut Intel's multibillion-dollar aid package would likely hammer the stock. Any turnaround Intel might achieve won't come easy, and would likely take years to play out. Its foundry business, which has a loss of $3 billion the second quarter, is an albatross. It has fallen behind rivals like Nvidia and AMD in the AI chip niche, and its reputation as a Silicon Valley dinosaur only seems to be hardening as the comments from Tan and the second-quarter disaster indicate. Friday's stock price pop might offer some solace to long-suffering shareholders, but it would be a mistake to see it as a first step in a recovery. After all, short-term movements in a broken stock are like rats on a sinking ship. It doesn't matter which way they run if the ship is still going down.