Intel's $2.8B Q1 loss and 36 percent revenue slide were slightly less horrible than expected Intel CEO Pat Gelsinger has defended the company's plan to become a chipmaker for hire after the company's profits plunged 134 percent year over year and it recorded a $2.8 billion loss during the first quarter of 2023. Intel has traditionally built fabrication plants to manufacture its own chips, but has seldom built silicon …
In quarter it burnt through $10.5B in cash on dividends, capex, and cash flow from operations.
At that burn rate it only has 6 months of cash left. (The reality is different as capex will halve and will get money form US Chips act but the dividend looks dead)
It was hoping to generate cash through sale of shares in its 94% stake in mobileye but yesterday the market value of mobileye dropped by $10b or a third on poor forecasts.
Pats law = The share price will halve every 18 months.
They can always borrow money. Sure interest rates are higher than the historic lows that existed until early last year, but I'm willing to bet Intel would rather pay 6% or whatever the corporate AAA rate is now than cut their dividend!
They will justify it by saying "we're close to turning the corner so this is only a temporary measure".
Intel aren’t AAA rated. According to Fitch rating grades, they are A-.
“Fitch's view that structurally higher investment intensity as Intel seeks to regain technology leadership and build out its foundry services business amidst weak demand conditions and market share losses, will result in significant intermediate-term negative FCF. Offsets to capital investments, including financial partnerships and government incentives, are likely insufficient to support cash needs over this horizon, requiring incremental debt funding and pressuring credit metrics. Meanwhile, execution risk is considerable, given that Intel is cutting costs while investing to out-innovate competitors over the next three-to-five years”
Intel are now only two pips above junk. You might or might not be surprised that such a company currently commands an interest yield of just 5.2% on its bonds, just 2% above Germany central bank base rate!
Well, throwing Intel Magdeburg and Ohio in the bin will save them two operating quarters of cash, each.
Berlin’s subsidy is a long way short of covering the additional cost of building in the EU. The EU’s plan was “Please build a fab planned to cost €20bn, will end up costing €30bn+ due to EU oversight costs, running costs €5bn annually, and we give €14bn subsidy to do it.” But the simple business alternative is to build the equivalent fab in APAC, nice predictable building cost €15bn, operating cost €3bn. Cheaper even by day 1, and goes on saving money forever. Chips Act isn’t income, it’s cost. EU Chips Act is worse than US money, but both are profit-negative for Intel if they proceed.
What’s at stake here is corporate embarrassment at withdrawing from the projects. But eventually, corporate survival will win. The silliness only stops when, as you say, the choice becomes to stop the dividend, go cap in hand to the banks (which won’t fund projects on that scale on acceptable terms), or throw the projects under the bus.
Sadly Intel went from being 2 generations ahead on process technology to 1.5 to 2 generations behind more advanced Semi-conductor firms like TSMC in the past decade. Oh, and isn't TSMC the world's largest third-party Foundry? Expanding operations with a Mega Factory in Arizona? I see the hand of Intel's impeccable timing once again. Just as their Crypto Chip arrived DoA due to the Crypto-Winter, Intel will have to use price to snag business from a US based TSMC operation. With what? As ex-Intel I do not blame Pat for the state of affairs Intel finds itself in today. In fact I wish him the best of luck for the future. But we need to be realistic about turn-around timing. First objective, relearn how to float.
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