Intel cuts its dividend by 66%, for the lowest yield in 16 years

(Bloomberg) — Intel, the largest maker of computer processors, cut its dividend payment to a 16-year low in an effort to conserve cash and focus on its turnaround plan.

Most Read from Bloomberg

The chip maker said in a statement on Wednesday that the company will reduce its quarterly dividend to investors to 12.5 cents a share, payable June 1. Intel’s current quarterly dividend is 36.5 cents and was expected to cost more than $6 billion in 2023. The new batch resets Intel’s earnings to a level not seen since 2007.

“The decision to cut the quarterly dividend reflects the Board’s deliberate approach to capital allocation and is designed to best position the company for long-term value creation,” Intel said in the statement. “The improved financial resilience will support the significant investments needed to implement Intel’s transformation during this period of macroeconomic uncertainty.”

In its earnings report last month, Intel predicted one of the worst quarters in its history as a slowdown in PC sales devastates the semiconductor industry. Intel is cutting jobs and cutting management salaries while also slowing spending on new factories in an effort to save up to $10 billion by the end of 2025.

Amidst the turbulent market, Intel is spending heavily under CEO Pat Gelsinger’s plan to restore its industry leadership. The company took a particularly big hit from losing market share to competitors. Gelsinger builds new products and tries to take on larger competitors in new markets.

Reducing its payments to shareholders undermines Intel’s position in the growing competition among chipmakers to offer higher returns. Historically, companies in the industry have not paid a dividend, reflecting the volatility of their cash flows amid wild swings between glut and shortage in the $500 billion-plus industry. This has changed in recent years and dividends have become important, not least because they show confidence in the stability of a company’s finances.

Story continues

“Investors have been wondering whether Intel will need to cut its dividend — which leads us to believe that this announcement, while negative, will not materially change investor sentiment,” Aaron Rackers, an analyst at Wells Fargo, said in a note.

Shares of Intel, one of the worst performers on the Philadelphia Stock Exchange semiconductor index this year, have lost 42% over the past 12 months.

Intel’s current dividend yield of more than 5%, calculated by dividing the annualized yield by the share price — dwarfs those of peer chipmakers. The company paid its first dividend in 1992 and has continued to increase it since then. But Intel has since lost its lead to deeper companies like Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co.

Separately, the company reiterated its outlook for the current period contained in late January. First quarter revenue will be in the range of $10.5 billion to $11.5 billion with a loss, minus some items, of 15 cents per share.

Intel is also cutting its budget for spending on new plants and equipment this year. On Wednesday, she said the company now plans to spend about 30% of revenue. That compares with an early forecast of around 35%.

(Updates with details throughout)

Most Read from Bloomberg Businessweek

© 2023 Bloomberg LP