Intel lost about $25 billion in market value and reported a 26 per cent drop in stock price on Friday in what marked its worst sell-off since 2000.
The drop was driven by weaker-than-expected earnings in the June quarter, the suspension of dividend payments and plans to cut jobs to fund the overhaul of its chip manufacturing division – all part of Intel's $10 billion cost-reduction plan.
Industry analysts view these cost-cutting initiatives as the company’s attempt to turnaround its chip-making business amid dwindling profits and market share.
The National looks at the factors contributing to the share price crash of a company that was once an undisputed leader in the chip market and explores what lies ahead for the company and the overall industry.
Steepest decline since 2000
Intel fell 26.06 per cent to close at $21.48 a share on Friday, plummeting the company's market value to $96.76 billion. It closed 5.5 per cent down at $29.05 on Thursday, giving the company a market capitalisation of $121.21 billion.
Friday's decline in market cap marked the company's biggest drop since shares crashed after the dot-com bubble burst between 2000 and 2002. It also marked the second-largest decline in the company's shares, surpassed only by a 31 percent drop in July 1974, three years after Intel's initial public offering.
The company's shares have dropped 55.06 per cent since the start of the year and 37.54 per cent in the past 12 months.
Industry experts expect the company to fall further next week.
Financial services company Raymond James adjusted its outlook on Intel on Friday, shifting the stock from an “outperform” rating to “market perform”. It expressed concerns over the chip maker’s future earnings potential.
In stock markets, an outperform rating signals an expectation that shares will perform better than the overall market while the market perform rating indicates that the stock could provide average returns.
Once part of Four Horsemen
The company was part of dot-com era's Four Horsemen, the term referred to four major technology companies – Intel, Cisco, Microsoft and Dell. They were considered leading players in the tech industry during the dot-com boom of the late 1990s and early 2000s.
Intel’s market cap reached its peak at about $500 billion in the 2000 but this was followed by a significant decline in the stock market, known as the dot-com crash, during which the shares of many tech companies plummeted.
After that sell-off, Intel's stock market value never returned to its peak.
Investor confidence ebbs
One of the largest chip makers by revenue, Intel reported a net loss of $1.6 billion in the second quarter ended on June 29, compared with a net income of $1.5 billion in the same period last year.
The loss per share stood at 38 cents in the last quarter against earnings per share of 35 cents in the corresponding period in 2023.
Revenue during the April-June period dropped by about 1 per cent annually to $12.8 billion, missing analyst expectations of $12.9 billion.
Its operating loss expanded to $2 billion in the previous quarter compared to $1 billion in the prior year period.
Gross margin – a financial metric that highlights the percentage of revenue that tops the cost of goods sold – stood at 35.4 per cent, down 0.4 percentage points.
In its note to investors, Raymond James cautioned that gross margin headwinds were expected to continue through next year, with limited opportunities for revenue growth.
It indicated that the company's profitability would remain under pressure in the coming quarters.
Pessimistic top executives
On Thursday, Intel chief executive Pat Gelsinger said that the second-half trends of fiscal 2024 will be more challenging than the company had previously expected.
His comments added to investors' worries and led to a decline in the price of Intel's shares and market cap on Friday.
“Our second-quarter financial performance was disappointing, even as we hit key product and process technology milestones,” Mr Gelsinger said.
He said the company is taking new cost cutting decisions amid hopes that this could potentially improve operating and capital efficiencies in the coming quarters.
“Second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our AI PC [artificial intelligence-enabled PCS] product, higher-than-typical charges related to non-core businesses and the impact from unused capacity,” said chief financial officer David Zinsner.
The company also issued a dismal guidance for the third quarter, ending on September 29.
For the July-September period, Intel predicted its revenue to hover between $12.5 billion and $13.5 billion, compared to $14.2 billion reported in the same period of last year. It expects its loss per share to reach 24 cents during the period.
Few cheers for expense reduction
Intel have announced a series of cost-reduction initiatives that aim to hasten growth in profitability and operational efficiency.
Some of the actions include structural and operational realignment, headcount reductions and the cutting of operating expenses and capital expenditure totalling more than $10 billion by 2025.
Intel expects these moves to help put it on the path to a sustainable business model, with additional financial resources and liquidity needed to support its long-term strategy. The tech giant said these initiatives will implement the next phase of a multiyear transformation strategy.
Cutting expenses
Intel has announced plans to reduce total capital expenditure by more than a fifth, compared with previous estimates, to between $25 billion and $27 billion this year and to between $20 billion and $23 billion in 2025.
The company has also announced plans to cut operating expenses to about $20 billion this year and $17.5 billion in 2025, with further reductions expected in 2026.
“By implementing our spending reductions, we are taking proactive steps to improve our profits and strengthen our balance sheet,” Mr Zinsner said.
“We expect these actions to meaningfully improve liquidity and reduce our debt balance while enabling us to make the right investments to drive long-term value for shareholders.”
Slashing jobs and suspending dividends
Intel will reduce its headcount by 15,000, or 15 per cent of its workforce. Most of the affected employees will be let go by the end of this year.
Next week, Intel will announce a companywide enhanced retirement programme for eligible employees and encourage employees to opt for voluntary retrenchment to cut costs.
“This is painful news for me to share. I know it will be even more difficult for you to read ... this is an incredibly hard day for Intel as we are making some of the most consequential changes in our company’s history,” said Mr Gelsinger in a memo to the staff announcing job cuts
The company also suspended dividends from the fourth quarter and defended the move as crucial to preserving liquidity to support the investment needed to execute its future strategy.
“Our costs are too high, our margins too low. We need bolder actions to address both – particularly given our financial results and outlook for the second half of 2024, which is tougher than previously expected,” Mr Gelsinger said.
Leading global decline
Intel’s losses led global chip companies to fall on Friday. Another US chip maker and AI company Nvidia was down 1.78 per cent at market close, ending at $107.27 a share on Friday.
In Asia, Taiwan Semiconductor Manufacturing Company, popularly known as TSMC, closed more than 4.5 per cent lower in Taiwan while Samsung was trading 4.21 per cent down.
Another chip maker SK Hynix, which has some big customers such as Nvidia, closed 10.40 per cent lower.
Has Intel struggled to adapt to evolving demands?
“Intel’s stock decline has been in the making for quite some time … their earnings miss, cost cutting plans and unprecedented layoffs are disastrous moves for the company. Decline in stock price will be hard to bounce back soon,” Robert Hodgins, founder of Miami-based Sand Hill Road Technologies Fund, told The National.
Industry analysts noted that Intel has potentially missed the opportunity to capitalise on the surging demand for computing power driven by AI, a move that allowed companies like Nvidia to gain a competitive edge.
The company also failed to recognise the shift in the semiconductor industry, where different parts of the production process - such as design, manufacturing, and packaging - have become more specialized and are often handled by separate companies, Dev Nag, founder and chief executive of California-based technology firm QueryPal, said.
“Intel has long been a vertically integrated company … this was great for efficiency and dominance in the mature CPU [central processing unit] market, but has become something of a hindrance in the fast moving AI chip market,” Mr Nag told The National.
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Started: December 2011
Co-founders: Elie Habib, Eddy Maroun
Based: Beirut and Dubai
Sector: Entertainment
Size: 85 employees
Stage: Series C
Investors: MEVP, du, Mobily, MBC, Samena Capital
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COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
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Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
Key facilities
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Picture of Joumblatt and Hariri breaking bread sets Twitter alight
Mr Joumblatt’s pessimism regarding the Lebanese political situation didn’t stop him from enjoying a cheerful dinner on Tuesday with several politicians including Mr Hariri.
Caretaker Culture Minister Ghattas Khoury tweeted a picture of the group sitting around a table at a discrete fish restaurant in Beirut’s upscale Sodeco area.
Mr Joumblatt told The National that the fish served at Kelly’s Fish lounge had been very good.
“They really enjoyed their time”, remembers the restaurant owner. “Mr Hariri was taking selfies with everybody”.
Mr Hariri and Mr Joumblatt often have dinner together to discuss recent political developments.
Mr Joumblatt was a close ally of Mr Hariri’s assassinated father, former prime minister Rafik Hariri. The pair were leading figures in the political grouping against the 15-year Syrian occupation of Lebanon that ended after mass protests in 2005 in the wake of Rafik Hariri’s murder. After the younger Hariri took over his father’s mantle in 2004, the relationship with Mr Joumblatt endured.
However, the pair have not always been so close. In the run-up to the election last year, Messrs Hariri and Joumblatt went months without speaking over an argument regarding the new proportional electoral law to be used for the first time. Mr Joumblatt worried that a proportional system, which Mr Hariri backed, would see the influence of his small sect diminished.
With so much of Lebanese politics agreed in late-night meetings behind closed doors, the media and pundits put significant weight on how regularly, where and with who senior politicians meet.
In the picture, alongside Messrs Khoury and Hariri were Mr Joumbatt and his wife Nora, PSP politician Wael Abou Faour and Egyptian ambassador to Lebanon Nazih el Nagari.
The picture of the dinner led to a flurry of excitement on Twitter that it signified an imminent government formation. “God willing, white smoke will rise soon and Walid Beik [a nickname for Walid Joumblatt] will accept to give up the minister of industry”, one user replied to the tweet. “Blessings to you…We would like you to form a cabinet”, wrote another.
The next few days will be crucial in determining whether these wishes come true.
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To mark Bodytree’s 10th anniversary, the coming season will be filled with celebratory activities:
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The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
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Moment of the day Dimuth Karunaratne had batted with plenty of pluck, and no little skill, in getting to within seven runs of a first-day century. Then, while he ran what he thought was a comfortable single to mid-on, his batting partner Dinesh Chandimal opted to stay at home. The opener was run out by the length of the pitch.
Stat of the day - 1 One six was hit on Day 1. The boundary was only breached 18 times in total over the course of the 90 overs. When it did arrive, the lone six was a thing of beauty, as Niroshan Dickwella effortlessly clipped Mohammed Amir over the square-leg boundary.
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Other simple ideas for sushi rice dishes
Cheat’s nigiri
This is easier to make than sushi rolls. With damp hands, form the cooled rice into small tablet shapes. Place slices of fresh, raw salmon, mackerel or trout (or smoked salmon) lightly touched with wasabi, then press, wasabi side-down, onto the rice. Serve with soy sauce and pickled ginger.
Easy omurice
This fusion dish combines Asian fried rice with a western omelette. To make, fry cooked and cooled sushi rice with chopped vegetables such as carrot and onion and lashings of sweet-tangy ketchup, then wrap in a soft egg omelette.
Deconstructed sushi salad platter
This makes a great, fuss-free sharing meal. Arrange sushi rice on a platter or board, then fill the space with all your favourite sushi ingredients (edamame beans, cooked prawns or tuna, tempura veggies, pickled ginger and chilli tofu), with a dressing or dipping sauce on the side.
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New Zealand 153 and 56 for 1 in 22.4 overs at close
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