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Intel slashes shareholder dividend by two-thirds as cash crunch bites

Sales will only be down 37 percent next quarter Pat promises

After tens of billions of dollars in stock buybacks and hefty dividends for shareholders over the last years, Intel on said Wednesday that it's cutting its quarterly dividend to $0.125 per share in an effort to cut costs while also funding its expansive foundry construction plans.

The cut is a rather substantial one for investors, falling 66 percent from the $0.365 per share dividend they're used to seeing.

"Prudent allocation of our owner's capital is important to enable our IDM 2.0 strategy and sustain our momentum as we rebuild our execution engine," CEO Pat Gelsinger said in a statement.

The decision, which Intel says "reflects the board's deliberate approach to capital allocation," reflects just how challenging Intel's financial situation has gotten in recent quarters, as demand for PC hardware has declined sharply post-COVID and with it's datacenter business under attack from AMD and Arm.

In addition to cutting the company's quarterly dividend by two-thirds, the chipmaker reaffirmed its dismal outlook for its first fiscal quarter of 2023. Intel expects to win $10.5 billion to $11.5 billion in revenues during the quarter, a 37 percent year-on-year decline in the best case scenario. The quarter will also mark the chipmaker's fourth consecutive quarter of double-digit revenue declines.

Intel's precipitous decline prompted the company to take action to stem the bleeding, with CEO Pat Gelsinger announcing that the company would take steps to cut $10 billion in annual spending by 2025. Of this, three billion of those cuts will come in the 2023 fiscal year.

To date, Intel has already cut nearly $1 billion in infrastructure projects and said it would cut a "meaningful number" of workers, including 544 staff in its California offices. Earlier this month the company extended those cost-cutting measures to employee pay and rewards as well.

Intel will reportedly cut senior worker's salaries by at least five percent. Meanwhile VPs will see their wages cut by 10 percent, while the executive team will take a 15 percent cut. Quarterly bonuses won't be paid, annual bonuses have also been put on pause.

One area that Intel is continuing to pour resources is into capex spending, particularly on new fabs in Arizona and Ohio. The company also has a large fab project planned for Magdeburg, but the project is awaiting approval of additional funding from the German government.

These sites are extremely expensive, with price tags ranging from $15 billion to $30 billion a piece, and thanks to rising energy prices and inflation they're only getting more expensive. To combat this, Intel says it'll continue to lean on its "Smart Capital" strategy, which involves leaning on private equity to further diffuse the cost of these facilities. Intel is currently working with Brookfield Asset Management and plans to announce a second partner later this year.

This isn't the first time that Intel financials have put the company at odds with its shareholders. Shortly after returning to Intel, Gelsinger announced the company would focus less on stock buybacks in the quarters to come. Early last year, he made good on that promise.

For the past three quarters, the company has reported no common stock repurchases. One of the reasons behind this may be related to US CHIPs funding.

It's no secret that Intel hopes to avail itself of a healthy portion of the $52 billion in funds set aside by the CHIPs and Science Act to fund domestic foundry projects. However, those funds come with a long list of conditions, one of which being that the money can't be used for stock buybacks.

Despite Intel's current trajectory, CFO David Zinsner expressed confidence that the company would return to financial growth after a period of intense investment. We take this to mean stock buybacks and dividends will return when the chipmaker isn't hemorrhaging cash ®

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