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0 US national security imperatives on semiconductors may not be enough for Intel. Last week the semiconductor titan reported fourth-quarter results that missed even their diminished expectations. The company blamed “persistent macro headwinds”. Worse yet, in the first quarter of 2023 revenue is forecast to fall 40 per cent.
The once indomitable force of Silicon Valley has stagnated for years. Chief executive Pat Gelsinger, brought in at some expense in 2021, along with an invigorated strategy to go big on chip production, has had a dicey time. Despite the Joe Biden administration’s willingness to allocate billions to create national champions in semiconductors, Intel’s immediate worry is over an unthinkable dividend cut to preserve cash.
The worry for Intel is that its fading business is not cyclical but secular as rivals AMD, Arm and Taiwan Semiconductor take market share in chips for personal computers as well as for enterprise servers. Analysts, for example, forecast that AMD’s revenue in 2023 will rise by 6 per cent. Intel’s should drop by nearly a fifth, according to S&P Global Market Intelligence.
Intel still has some wriggle room. Free cash flow was negative $4bn in 2022, and will remain so at least for a part of 2023, according to Intel. It still boasts cash and investments of $28bn and a high investment-grade credit rating. It spent $6bn of that money covering its dividend in 2022, though it shut off the buyback spigot.
Billions of dollars could flow to it via the 2022 Chips Act over the next several years. Intel has also struck a joint venture partnership with the private capital firm Brookfield, which will contribute as much as $15bn to the development of new chip fabrication plants in Arizona.
Intel’s shares are down 60 per cent from the recent 2021 peak. Its depressed price offers a 5 per cent dividend yield that is not wholly secure. The company’s ambitions may be commensurate with its operational ability. But that is not obvious now and ultimately Intel will need years to prove itself.
