Intel's Ugly Earnings Report is Bad News for Income Investors
Intel stock is sinking Friday after the tech giant's dismal earnings results, which includes job cuts and a suspended dividend. Here's what you need to know.
Intel (INTC) stock is easily the worst Dow Jones stock Friday, down roughly 30% at its intraday low, after the chipmaker reported second-quarter results that fell short of top- and bottom-line expectations. To make matters worse, INTC also provided a weak outlook for its third quarter, announced job cuts and suspended its dividend.
In the second quarter, Intel's revenue decreased 0.9% year-over-year to $12.8 billion. Its earnings per share (EPS) plunged 84.6% from the year-ago period to 2 cents.
"Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones," said Intel CEO Pat Gelsinger in a statement. "Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation."
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The results missed analysts' expectations. Wall Street was anticipating revenue of $12.9 billion and earnings of 10 cents per share, according to CNBC.
For the third quarter, Intel said it anticipates revenue in the range of $12.5 billion to $13.5 billion and a net loss of 3 cents per share, which again fell short of analysts' expectations. Wall Street was projecting revenue of $14.4 billion and earnings of 31 cents per share.
As part of its efforts to cut costs, Intel said it is reducing its headcount by 15% and temporarily eliminating its dividend.
"Intel is taking the added step of suspending the dividend starting in the fourth quarter, recognizing the importance of prioritizing liquidity to support the investments needed to execute its strategy," the company said. However, Intel noted that it has a "a long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels."
Its last dividend payment before the suspension is 12.5 cents per share, payable on September 1 to shareholders of record on August 7.
Is Intel stock a buy, sell or hold?
Intel has been a huge disappointment for long-term investors, as evidenced by its dismal 20-year return. Things haven't been much better in 2024, with shares of the blue chip stock down nearly 60% for the year to date.
It shouldn't come as too much of a surprise, then, that Wall Street is on the sidelines when it comes to Intel. According to S&P Global Market Intelligence, the average analyst target price for INTC stock is $34.22, representing implied upside of roughly 60% to current levels. Additionally, the consensus recommendation is Hold. However, analysts may very well revise their price targets and ratings lower following the dismal earnings release and dividend suspension.
Financial services firm Susquehanna is one of those that reduced its price target on INTC stock this morning, to $26 from $34.
"Ultimately, we worry that Intel is losing its status as a 'Moore's Law' company with its ability to extract value through process leadership and the best wafer manufacturing in the world," said Susquehanna analyst Christopher Rolland in a note this morning.
"While this loss in leadership raises competitive risks, we believe the company has been executing better around its roadmap and various timetables," the analyst noted. This, as well as the fact that Intel is currently holding its own in PCs vs Advanced Micro Devices (AMD), is why Rolland remains Neutral-rated (the equivalent of a Hold) on INTC.
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