Intel has slashed its dividend to shareholders by nearly two-thirds, confirming long-running Wall Street fears that it would take an axe to the quarterly payments as it struggles to pull off a turnround in the face of plunging revenue.
The US chipmaker on Wednesday said the quarterly payout would fall to 12.5 cents, down from the previous level of 36.5 cents. The move will save about $4bn a year at a time when Intel is pouring investment into its chip manufacturing operations in an effort to make up lost ground on rivals Taiwan Semiconductor Manufacturing Company and Samsung.
Intel chief executive officer Pat Gelsinger said the company’s board had acted to conserve cash after a deterioration in macroeconomic conditions that had already led Intel to predict revenue this quarter will fall about 40 per cent from last year.
“Our free cash flow fell below our guard bands. We came to the conclusion that the highest dividend payer shouldn’t be the highest capital investor at this period in time,” he said on a call with analysts.
The widely anticipated nature of the move, along with the company’s confirmation that it expected to meet the reduced financial guidance it issued last month, left Intel’s shares largely unchanged on Wednesday.
However, its shares have fallen more than 60 per cent from a high point after Gelsinger took over as chief executive in 2021, as the financial stresses on the company have intensified and Wall Street has anticipated a dividend cut.
The Intel chief said the sudden drop in revenue had not affected the pace of new product launches and manufacturing advances the company had been pursuing to rebuild its competitiveness.
“We do feel the green shoots are starting to emerge”, even as the company was going through “a desert period”, he said.
The cut lowers the dividend yield on Intel’s shares from 5.6 per cent to 1.9 per cent, compared with a dividend current yield of about 1.65 per cent on the S&P 500 index. Intel said its board was “committed to maintaining a competitive dividend”, after paying out $80bn to shareholders since starting the quarterly payments in 1992.
Gelsinger denied the dividend cut had been made for political reasons, as Intel pursued large government grants in the US and Europe to support its new chip manufacturing investments.
The company has been criticised for its large payouts to shareholders at a time when it is seeking billions of dollars in taxpayer support, including large-scale stock buybacks to which Gelsinger put an end when he took over. “These decisions were entirely independent,” he said.
The Intel chief also continued to insist Intel would stick to its strategy of building a foundry business that would manufacture chips on behalf of other companies, despite mounting questions about whether it should change course and split manufacturing from its other operations.
Intel was already “essentially teasing apart the company” into two separate operating divisions, he said, adding that it would begin reporting separate financial results for its foundry operation next year. “To some degree, we are already considering a different structure,” he added.
Additional reporting by Alexandra White in New York