The well-known chip designer company Intel (INTC) has been under the spotlight recently, but not for the right reasons. Underwhelming second-quarter results catalyzed this negative market reaction, pushing down the stock by 27% in a day, and investors are turning their backs on INTC stock. Nevertheless, we are dealing with a pioneer in the semiconductors industry that has faced challenging times before this one. So there are plenty of reasons why we shouldn’t write its requiem prematurely. But for now, here are three reasons:
- Second quarter results are not all doom and gloom: Yes, the second quarter’s results are not something to be proud of, with INTC failing to meet expected revenue and EPS. However, regarding revenue, Intel only slightly missed the $12.9 billion expected with $12.8. On the other hand, it did miss adjusted earnings of $0.10 quite spectacularly, posting a loss of $0.02. On the bright side, the company’s computing segment has increased revenue by $9 year-over-year. Additionally, total product revenue rose by 4%, and Intel’s foundry grew by 4% as well. Not stellar results, but not disastrous.
- There’s a strategy in place: The news of Intel’s plan to lay off between 15,000 and 19,000 employees didn’t do its shares any favors. In addition, the company has stopped dividend payments, which probably increased its investors’ anxiety. However, Intel intends to open its own chip foundry, meaning it will design and manufacture the chips, making it an “all-in-one” kind of company, giving it an advantage and separating it from other companies in the semiconductor sector. To fulfill this ambitious strategy, INTC will need all the free funds it can get, and pausing its dividends shares and laying off a fair portion of its employees is necessary.
- Intel has been here before: Intel stock suffered a great decline back in 2020, losing almost 17% of its share value after encountering difficulties in its chip production. It wasn’t considered a leading force in the sector anymore. Although the company is still confronting the same issue, it certainly didn’t collapse in the face of adversity, and there’s no reason to think why it would now.
Final Word on INTC
It seems that Wall St. is all but set on pulling the trigger on Intel, as it’s fair to assume that its prospects of climbing back to the top are not great. However, the company has shown resilience in the past and has a long-term strategy in place to establish a chip foundry that will help it fulfill its targets. The mass firing and putting a pause on dividend payments look bad, but it seems necessary to sacrifice the present for future success.
