Intel shares slump 28% as turnaround struggle deepens
Corrects headline to remove reference to record slump. In first paragraph, corrects to show stock on track for worst day since 1974, not worst day ever
Aug 2 (Reuters) -Intel INTC.O shares sank nearly 28% on Friday and were set for their worst day since 1974 after the company suspended dividend and slashed workforce to fund a costly turnaround for its chip-making business.
The company was set to lose about $35 billion in market value as its disappointing forecast and planned 15% job cuts raised worries about its ability to catch up with Taiwan's TSMC 2330.TW and other chipmakers.
"Intel's issues are now approaching the existential in our view," Bernstein analyst Stacy Rasgon said.
He said there would be "going concern" talks in other circumstances, but Intel could add $40 billion in cash to its balance sheet by the end of 2025 through the moves, as well as subsidies and partner contributions.
"Intel will survive (in some form) to continue the fight," Rasgon said.
Shares of other chip firms also fell, with Arm ARM.O, Micron Technology MU.O, GlobalFoundries GFS.O and U.S.-listed shares of TSMC TSM.N trading down between 2.8% and 6.7%.
Wall Street darling Nvidia NVDA.O was 2% lower after a report about an investigation by the U.S. Department of Justice.
'FORGOTTEN HORSEMAN'
Santa Clara-based Intel was once the world's leading chipmaker, with the "Intel Inside" logo a valuable marketing feature on personal computers in the 1980s and 90s.
Part of the dotcom era's Four Horsemen - along with Cisco Systems CSCO.O, Microsoft MSFT.O and Dell DELL.N - Intel's stock market value peaked at nearly $500 billion in 2000 before slumping that year and never fully recovering.
It continued to dominate in hefty PC chips, but was caught off foot by the launch of Apple's AAPL.O iPhone in 2007 and other mobile devices that demanded lower power and less pricey processors.
If Friday's losses hold, Intel's market value would fall to about $90 billion, equivalent to less than 5% of Nvidia's and about 40% of Advanced Micro Devices' AMD.O, the two PC chipmakers it heavily dominated for decades until recently.
"Eliminating the dividend may pressure the share price because it will knock Intel out of any ETFs, indices and fund strategies that only include dividend payers," said Michael Schulman, chief investment officer of Running Point Capital.
"Intel has been one of the forgotten horsemen of technology the last couple decades. Never overtaking its year 2000 highs and struggling to get earnings back to where they were before the AI revolution."
Its server chip business has been taking a hit for several years as companies prioritize spending on AI chips, where it lags rival Nvidia, which has become one of the world's most valuable firms thanks to booming demand for its processors.
To regain its manufacturing edge, Intel is planning to spend $100 billion across four U.S. states to build and expand factories after securing $19.5 billion in federal grants and loans.
The company told investors on Thursday it remains "comfortable" with those CHIPS program plans.
The company's turnaround plan depends on persuading outside companies to use its manufacturing services. But analysts say the push to energize the business could take years. For now, it is increasing Intel's costs and pressuring profit margins.
Intel's unesecured bond that offers a coupon of 5.15% and is due in 2024 was trading 20 basis points wider on Friday, way above bonds of other companies, according to investors. Its 5.6% unsecured bonds due in 2054 also widened by 17 basis points.
The higher trading volume compared to other bonds was due to Intel's recent earnings report, bond market participants said.
"That's weighing on bond trading," said Dave Novosel, senior investment analyst at corporate bond research firm Gimme Credit. "They see that they may need to come back to market for a modest amount of debt."
At least 14 analysts lowered their price target on Intel's stock, pushing down the median PT to $28. Its shares were trading at a more than 11-year low of $20.6 on Friday.
The stock has a 12-month forward price-to-earnings ratio of 18.62, compared with Nvidia's 32.15 and AMD's 29.42.
Intel's slowdown Intel's slowdown https://reut.rs/46tOxQc
Intel's stock set for worst day since dot-com era https://reut.rs/3LQtxcU
Reporting by Noel Randewich in Oakland, California, and Aditya Soni in Bengaluru; Additional reporting by Matt Tracy in New York and Arsheeya Bajwa in Bangalore; Editing by Arun Koyyur
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