Intel (INTC, Financial) is facing significant challenges after a disappointing Q2 performance, missing both top and bottom-line estimates, and issuing weak Q3 guidance. According to reports, Intel has hired advisors from Morgan Stanley (MS, Financial) and possibly other firms to prepare for potential battles with activist investors.
Key Points:
- Intel's stock has dropped 60% year-to-date, making it a potential target for activist investors.
- Intel has lost significant market share to Advanced Micro Devices (AMD, Financial) and NVIDIA (NVDA, Financial), particularly in the AI and data center segments. In Q2, Intel's Data Center and AI segment revenue fell by 3%, while AMD's surged by 115%, and NVDA's revenue skyrocketed by 262% last quarter.
- Potential activist investors may push for further cost reductions and a sharper focus on AI and core businesses. Intel has already announced a 15% workforce reduction, a 20% cut to its 2024 capex, and suspended its dividend.
- Intel has a history of divesting non-core assets. In October 2022, it spun off Mobileye Global (MBLY, Financial), and in February, it spun off Altera into a standalone FPGA company. In September 2023, it sold a 10% stake in IMS Nanofabrication to Taiwan Semiconductor Manufacturing (TSM, Financial) for $4.3 billion.
- Intel needs more capital to support its "IDM 2.0" strategy, which focuses on technology leadership and transitioning to a foundry model. For context, Intel's cash flow from operations for the first half of 2024 was $1.07 billion, compared to nearly $9.0 billion a decade earlier.
In summary, Intel's leadership is in a vulnerable position as the company's turnaround plan struggles and it continues to miss out on significant growth opportunities in the semiconductor industry. While some cost-cutting measures have been implemented, activist investors may push for even more drastic actions.
