Intel shares fall 28% as recovery struggle deepens By Reuters

(Reuters) – Intel (NASDAQ:) shares fell nearly 28 percent on Friday and were on track for their worst day since 1974 after the company suspended its dividend and cut its workforce to fund a costly turnaround of its chipmaking business.

The company was set to lose about $35 billion in market value as its disappointing forecast and planned 15% job cuts raised concerns about its ability to catch up with Taiwan's TSMC and other chipmakers.

“In our view, Intel's problems are now approaching the existential,” said Bernstein analyst Stacy Rasgon.

He said there would be talks about “ongoing concern” in other circumstances, but Intel could add $40 billion in cash to its balance sheet by the end of 2025 through the measures, as well as subsidies and contributions from partners.

“Intel will survive (in some form) to continue the fight,” Rasgon said.

Shares of other chip companies also fell: Arm, Micron technology (NASDAQ:), GlobalFoundries (NASDAQ:) and US-listed TSMC shares fell between 2.8% and 6.7%.

Wall Street darling Nvidia (NASDAQ:NVD) fell 2% after a report of an investigation by the U.S. Department of Justice.

'FORGETTABLE RIDER'

Santa Clara-based Intel was once the world's leading chipmaker, and the “Intel Inside” logo was a valuable marketing element on personal computers in the 1980s and 1990s.

Intel, part of the four horsemen of the dot-com era – along with Cisco Systems (NASDAQ:), Microsoft (NASDAQ:) and Dell (NYSE:) – reached a market value of nearly $500 billion in 2000 before collapsing that year and never fully recovering.

It continued to dominate the market for heavyweight PC chips, but was caught off guard by the launch of Apple's (NASDAQ:) iPhone in 2007 and other mobile devices that demanded lower-power, less-expensive processors.

If Friday's losses hold, Intel's market value would fall to about $90 billion, equivalent to less than 5% of that of Nvidia and about 40% of that of Advanced Micro Devices (NASDAQ:ADD), the two PC chip makers it dominated for decades until recently.

“Eliminating the dividend could put pressure on the stock price because it will leave Intel out of any ETF, index and fund strategies that only include dividend payers,” said Michael Schulman, chief investment officer at Running Point Capital.

“Intel has been one of the forgotten riders of technology over the past two decades. It never surpassed its 2000 highs and is struggling to regain the profits it enjoyed before the ai ​​revolution.”

Its server chip business has been hit hard for several years as companies prioritize spending on artificial intelligence chips, an area where it lags behind rival Nvidia, which has become one of the world's most valuable companies thanks to surging demand for its processors.

To regain its manufacturing edge, Intel plans to spend $100 billion in four U.S. states to build and expand factories after securing $19.5 billion in federal grants and loans.

The company told investors Thursday that it remains “comfortable” with those CHIPS plans.

The company's turnaround plan hinges on persuading outside companies to use its manufacturing services. But analysts say the effort to revive the business could take years. For now, it is driving up Intel's costs and pressuring profit margins.

Intel's unsecured bond, which offers a 5.15% coupon and matures in 2024, was trading 20 basis points higher on Friday, well above bonds of other companies, according to investors. Its 5.6% unsecured bonds due in 2054 also rose 17 basis points.

The higher trading volume compared to other bonds was due to Intel's recent earnings report, bond market participants said.

“That's affecting bond trading,” said Dave Novosel, an investment analyst at corporate bond research firm Gimme Credit. “They see that they may need to go back into the market to acquire a modest amount of debt.”

At least 14 analysts cut their price targets for Intel shares, bringing the average target price down to $28. Its shares were trading at $20.60 on Friday, the lowest in more than 11 years.

The stock has a 12-month trailing price-earnings ratio of 18.62, compared with Nvidia's 32.15 and AMD's 29.42.

(This story has been corrected to remove reference to a record drop in the headline and to say stocks are on track for the worst day since 1974, not the worst day ever, in paragraph 1.)