What Happened?
Shares of computer processor maker Intel (NASDAQ:INTC) fell 5.9% in the afternoon session after the company announced the retirement of CEO Pat Gelsinger. While the company searches for his replacement, CFO David Zinsner and Michelle Johnston Holthaus, CEO of Intel Products, will lead the company.
Following the announcement, analysts are debating the future of the foundry business, which didn't meet expectations under Gelsinger, leading the company to play catch-up to some of its competitors in the chip manufacturing business. Notably, maintaining a stake in the foundry business contributes towards some of the funding objectives under the CHIPS Act. On November 26, 2024, the Commerce Department awarded Intel $7.9 billion in CHIPS Act funding as part of the effort to keep critical parts of the semiconductor manufacturing process on U.S. soil. However, with the search for a new CEO still ongoing, investors are uncertain about the future of the business, including deciding whether to value the foundry business as a standalone entity and whether a new leader can deliver the much-anticipated turnaround of the division.
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What The Market Is Telling Us
Intel’s shares are quite volatile and have had 19 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago when the stock dropped 27.9% on the news that the company reported weak second quarter earnings results. Its revenue guidance for next quarter missed analysts' expectations, and its revenue missed Wall Street's estimates during the quarter. Taking a closer look at the top line results, PC demand was affected by China export controls and inventory digestion, while Server demand was affected by market share loss. Notably, the inventory-related headwinds are projected to continue till Q3, though at a more modest pace, affecting CCG (client computing group) and DCAI (Data Center & AI) segments. In addition, the company announced it is trimming 15% of its headcount, which was over 125,000 at the end of the second quarter. Lastly, the company suspended dividend payments which is never a good sign. Overall, this quarter could have been better.
Intel is down 52.8% since the beginning of the year, and at $22.57 per share, it is trading 55.5% below its 52-week high of $50.76 from December 2023. Investors who bought $1,000 worth of Intel’s shares 5 years ago would now be looking at an investment worth $402.44.
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