The chip giant Intel
INTEL CORPORATION
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opening:25.96
High:26.9
low:25.3
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It will distribute a quarterly dividend of 12.5 cents per share starting June 1 after its previous dividend was 36.5 cents per share. This is a 66% cut, which will free the company up to 4 billion dollars.
In a statement published by the company, it was stated that “the decision to lower the dividend represents the board of directors’ approach to capital allocation and is intended to create value for investors in the long term. The cash that will be left for the company with the help of the dividend cut will support necessary investments that the company needs to make in order to support the changes that it is required to go through following the macroeconomic changes.”
In addition, the company added that it is “committed to maintaining a competitive dividend”, meaning that it will maintain a dividend that will still be considered high compared to competitors despite the reduction.
During previous report calls, Intel made sure to change the wording of its statements from “a strong and growing dividend” to “maintaining a competitive dividend” which probably prepared the ground for the announcement. Analysts expected Intel to cut the dividend following its latest reports, which showed a sharp drop in sales, and therefore many of them believe that despite the negative announcement, investor sentiment regarding Intel did not change substantially and indeed the stock reacted with slight increases.
During the conversation, Intel’s CFO, David Zinsner, also added that “We are on our way to reaching the goal of cutting 3 billion dollars in expenses because we want to reach the goals of 8 billion and 10 billion dollars by 2025. Although we are currently making sure to continue managing the cash in an intelligent way, but we are building the basis for significant operational leverage and growth in free cash flow.”
This step was inevitable, Intel could not continue to pay a high dividend and at the same time report a negative free cash flow. There is no doubt that this is a step in the right direction, since the cash we shared could be reinvested in the business and help the company grow at a much faster rate along with other steps already taken such as layoffs. A temporary reduction of compensation and rewards for employees and the board of directors will also give it more room to maneuver in the current market.
About a month ago, the company published its financial reports for the fourth quarter of 2022 according to which it earned 10 cents per share, on revenues of $14 billion (fourth quarter in a row of revenue decline and an annual decline of 32%). The company expects revenues of only 11 billion dollars in the current quarter, when the market expected it to report revenues of 13.76 billion dollars. In the bottom line, Intel expects a transition – surprisingly – to a loss of 15 cents per share, while the analysts expected a profit of 20 cents per share.
Two of Intel’s top executives bought shares of the chip maker on the open market at the beginning of the month after the company published disappointing forecasts. The company’s CEO, Pat Gelsinger, paid a quarter of a million dollars on January 31 for 9,000 shares, at an average price of $27.83 each. According to a form he submitted to the Securities and Exchange Commission, Gelsinger made the purchase through a family trust. Apart from those shares purchased, Gelsinger owns Also in 30,124 shares of Intel in a personal account, and 361,099 shares through other trusts.
Intel shares fell by 4% since the beginning of the year to a price of $25.7, which represents a market value of $106.3 billion. The company trades under a future earnings multiple (2023) of 48.
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