Intel Cuts Fab Buildout by $4B To Pay Billions In Dividends

First Net Loss In Over 30 Years, Cutting Fab Buildouts, But “Committed To Growing The Dividend”

The talk of the semiconductor world right now is how Intel’s business has exploded overnight in Q2 of 2022. Intel has reported a net loss of $454,000,000 in Q2 2022. This is Intel’s first GAAP net loss in over 30 years. The Covid work from home and datacenter booms allowed Intel to cover the rot of the core businesses of design and manufacturing semiconductors for 2 years.

Intel doesn’t have that luxury anymore as the global economy slows globally and the US is officially in a recession. While the rapid slowdown in the PCs industry is a big contributor, Intel also continues to lose market share in the rapidly growing datacenter business.

In the face of Intel’s first net loss in over 30 years, Intel’s executives have decided their shareholders short term pocketbooks are more important than the company

Finally, we paid dividends of $1.5 billion, a 5% increase year-over-year, and remain committed to growing the dividend over time.

David Zinsner, Intel CFO, 7/28/2022 at Intel’s Q2 2022 Earnings Call

We wouldn’t mind the action of continuing to pay dividends and growing them over time if it that didn’t affect their new fab buildouts and turn-around plan.

We are also lowering core expenses in calendar year '22

Pat Gelsinger, Intel CEO, 7/28/2022 at Intel’s Q2 2022 Earnings Call

This lowering of core expenses is directly tied to building less fabs.

CapEx, we're revising down our forecast to $23 billion, $4 billion less than our previous guidance

David Zinsner, Intel CFO, 7/28/2022 at Intel’s Q2 2022 Earnings Call

Intel paid a quarterly dividend of $1.5 billion in Q2, they expect to pay that much or more for Q3 and Q4 of 2022. That is a minimum of $4.5 billion dollars paid in dividends. Compare that to the $4 billion reduction in capital expenditures which are mostly related to building fabs. Intel will try to waffle about gross vs net capex, but their direct spending is being reduced.

We were wrong about Pat Gelsinger and his mission for Intel. In the past we wrote how he changed Intel’s strategy and is “Betting The Farm” by investing heavily in their core business.

Intel could follow the path of many other American goliaths such as IBM and General Electric. A slow slide to irrelevancy, spinning off business, and bringing shame to what was once pride for American ingenuity. Instead of that conservative route, they are going to bet the farm, spend every dime they make on investing in more manufacturing, design, and in general catching up in technology.

We even believed that Pat Gelsinger was changing the culture that Intel has and was throwing everything including the kitchen sink at restoring Intel to their former standing. We want to apologize to as we were wrong.

This action shows Pat Gelsinger is very similar to the prior Intel CEO who was a career Chief Financial Officer at multiple publicly traded companies. It’s a disgrace that Intel has decided to cut fab buildouts while begging the US government for subsidies through the chips act and committing to growing their dividend.

This attitude by American executives is exactly why the US will lose in the semiconductor industry. Moves like the CHIPS Act are only band-aids to the problem and do not structurally change the policy issues in the US. We will do doing an objective deep dive on the 1,054 page CHIPS Act that recently passed, but it doesn’t even prevent Intel from continuing their plans of purchasing semiconductor manufacturing tools from a new Chinese supplier.

Intel’s financial model seems ignorant of what is happening in the macro economy and with their competition. Our financial model shows Intel will be free cashflow negative in 2023.

Even with billions in subsidies from the US and EU CHIPS Act’s, Intel faces a difficult choice due to deteriorating financials.

One path has Intel cut their dividend, raise debt in a higher interest rate environment, and continue to build more fabs at the rate they said they would.

The other path has Intel financializing the company by thinking short term, growing their dividend, and using American and European taxpayer dollars to fund shareholder return.

We had hoped Intel would choose the prior path of being a technology company, but they made it very clear on their Q2 earnings call that they chose the financial route by reducing investments in fabs and paying life-long Intel engineers their lowest quarterly bonuses ever.

Shame on you Intel and shame on you Pat Gelsinger.

Backing off on the sensationalism, we believe Intel will likely be underutilized in 2023 due to a weak macroeconomy and fierce competition. In that environment, it makes sense for Intel to cut the capacity buildout. It’s the correct move. If Intel admitted that, it would make sense.

However, we believe our turnaround is clearly taking shape, and expect Q2 and Q3 to be the financial bottom for the company.

Pat Gelsinger, Intel CEO, 7/28/2022 at Intel’s Q2 2022 Earnings Call

Intel doesn’t want to admit that though. Instead, they think this is the bottom for the company and they will improve the business from here on out.

We apologize for being so heated and opinionated here, but Intel is a company we love, but their current actions deeply sadden us.