Intel (NASDAQ: INTC) Just Hit Rock Bottom — Break It Up

Intel (NASDAQ: INTC) stock has been in a downward spiral all year. In fact, you’d have to go back four decades to when the company was trading for less than $1.00 per share to find a more harrowing stretch in its existence.

The problem is that Intel simply missed the boat on AI. Whereas competitors like Nvidia, Taiwan Semiconductor, and AMD raced out advanced AI chips, Intel failed to come up with anything compelling or buzzworthy. 

Declining revenue and earnings led to a spate of cost-cutting measures, and a pivot to chip manufacturing on a contract business has yet to pan out. 

All of that culminated with the abrupt resignation of CEO Pat Gelsinger last week. Now the company has two CEOs in charge but no clear ideas about what to do next. 

It may be that in the year 2025 we see Intel broken up and sold off in pieces, marking the end of an American mainstay.

The Death Knell for Intel Stock

Intel stock has lost roughly 60% of its value YTD. The decline started with a bad first-quarter — and even worse second-quarter — earnings reports distinguished by declining revenues, paltry profits, and dismal forecasts. 

The company suspended the dividend it’d paid since 1992 and announced plans to lay off 15% of its workforce, or about 110,000 people. 

As I said, the key issue has been an inability to keep up with advances in chip design. 

For example, the company lost its bid to design and fabricate Sony’s PlayStation 6 chip to AMD and TSMC. That contract could have pumped $30 billion into Intel in the course of a few years.

Other contract losses were just unlucky. Intel cut its sales expectations in May after the U.S. government revoked its license to supply chips to China’s Huawei Technologies. That was the result of the Biden administration’s effort to shore up national security risks.

Nevertheless, the Intel stock managed to find some footing in the fall. In September, the company announced a new multi-year, multi-billion-dollar collaboration with Amazon to manufacture AI chips for AWS. And its third-quarter earnings report, which came out at the end of October, was better than what analysts expected.

Those expectations were a low bar to clear, of course. Intel’s revenue fell 6% year over year, and the company swung to a net loss of $17 billion ($3.88 per share) compared with net earnings of $310 million, or $0.07 per share, the year prior.

Still, the revenue, earnings, and guidance were more than Wall Street expected. Unfortunately, whatever momentum was gained in the fall evaporated last week with the departure of Gelsinger. 

Again, most of the analysts who follow the company felt he still had the confidence of his company’s board at the end of the last quarter. 

“The board of directors is clearly backing Pat G with plans to run the two businesses combined,” said Cantor Fitzgerald analyst C.J. Muse. “Pat has the backing of the board.”

Turns out that wasn’t the case after all.

Losing a CEO isn’t the end of the world, but you typically like to see evidence of a new direction when one departs, and in this case, we didn’t get it. 

Company executives David Zinsner and Michelle Johnston Holthaus have been named as interim co-CEOs while Intel scrambles to find a permenant replacement. That’s a tall order, given the company’s predicament. 

Intel spent big to expand its foundry business under Gelsinger, with capital expenditures going from $18.7 billion in 2021 to $25.8 billion in 2023 — even as revenue waned.

If Intel is going to stay committed to that strategy, why replace Gelsinger? Even if the turnaround has been slow-moving, a manufacturing maven who’s also familiar with Intel’s products and processes isn’t just lying in wait. 

“I thought Gelsinger was the best possible CEO for Intel. He was the strongest candidate to execute the company’s turnaround,” said Hendi Susanto, a portfolio manager at Gabelli Funds. “I can’t really come up with a list of candidates who have strong manufacturing backgrounds. It is a Herculean task.”

So what comes next? The answer is now somehow even murkier than it was a month ago. 

And the answer may ultimately be dissolution. 

Rumors were already swirling in September that Qualcomm floated a proposal to acquire Intel in a friendly buyout. 

Lattice Semiconductor is also said to be considering a bid for Intel’s Altera business. Intel acquired Altera, which manufactures programmable logic devices, in 2015 for $16.7 billion.

Intel also has stakes in MobileEye (NASDAQ: MBLY) and Arm (NASDAQ: ARM) that could be jettisoned.

And its Foundry manufacturing unit could be spun off entirely. 

To be honest, I don’t know what’s going to be left of Intel a year from now. But a turnaround for the company and Intel stock, as is, seems terribly unlikely at this point.