Intel's Dividend Cut, Nvidia's Earnings, and Besi
Intel's Dividend cut is the first step in the right direction, Nvidia is an AI service company, and BESI talks about their hybrid bonding potential
Happy birthday to me (yesterday, but this post was primarily written on my birthday, lol). Somehow beyond my wildest expectations, I am fired up to write about semiconductors. On to the update. BTW we have a lot of content in the pipeline.
Intel Cuts Its Dividend
Rejoice! Intel has cut its dividend! Here’s the press release.
Intel Corporation today announced that its board of directors has reset its dividend policy, reducing the quarterly dividend to $0.125 per share (or $0.50 annually) on the company’s common stock
At current shares outstanding of 4,137 million shares, that is ~$2 billion dollars a year in dividend payments, they burnt ~$9 billion in cash last year and are sitting on ~$11 billion in cash. Unsurprisingly, they did this, as the dividend was unsustainable. But why cut the dividend by 66% and not all the way?
That isn’t a token cut; frankly, it rounds to 100%. It’s mind-boggling and funny. Intel finally cuts the dividend, but they can’t go all the way. I don’t think anyone is surprised that Intel’s board has questionable decisions.
Intel needed to do this. And along with cutting the dividend, Intel also reaffirmed its guidance. But that’s just the beginning of what they discussed on their capital allocation call. First, they are reducing capital intensity to 30% versus 35%.
Based on the hard work of all our teams, we now expect to manage net CapEx intensity in the low 30%s of revenue in calendar year '23 versus our original target model of 35%.
What’s more, a separate P&L for Intel Foundry will begin reporting in 2024.
Finally, in Q3, we announced that we established an internal foundry model and are providing incremental transparency to our owners by reporting our manufacturing group as a separate operating segment in 2024, giving them a P&L for the first time in the company's history, and by so doing, creating what we believe will be a superior incentive structure and clarity of benchmarking to external peers.
Intel is also cutting to the bone. They are reducing all capex that they can and trying to only invest in “capacity” capex, meaning that they need less capacity given the world needs fewer Intel CPUs and more AMD CPUs. But cutting the spending completely is hard, especially if you want to launch IFS.
And we've been -- being aggressive to pursue capital offsets, as you know. At the same time, we are trimming, what I like to describe is our capacity CapEx to align the business environment, even as we keep strategic long-term CapEx on track for our restoration and position of leadership for the long term. So the net CapEx is reduced a bit in that respect. And as Dave will describe in a moment, the ratios are improving as well as we indicated.
How they frame the IDM 2.0 acceleration sounds like the split between fab and fabless seems inevitable now.
…That is the nature of the internal foundry strategy that we spoke about over the last 2 quarters, where we said we have to treat the internal foundry business as we treat our external foundry customers as well. And this idea of the 2 different operational models of the company is something that we're well underway with. We've called it the IDM 2.0 acceleration office.
This is a regular process now that we are essentially teasing apart the company into internal foundry, which is truly measuring ourselves as a foundry, benchmarking ourselves as a foundry and standing up all of the business operations to support both our internal business units.
I believe this is the capitulation Intel needed to take before we could earnestly consider the bottom of the stock. Intel finally cut the dividend, acknowledged its capacity is not needed and is narrowing its near-term ambitions for the moonshot that is RibbonFET and PowerVia (read more here).
I am constructive for the first time. Intel seems to finally understand the reality of what is going on. The part that I am not hopeful about is the talent drain, as motivated employees with a shot are leaving in droves.
It’s a tough time for Intel, America’s former semiconductor champion. And we are a few years from being able to assess if the turnaround can happen. The dividend cut was just the first step to turning around Intel. But it’s nice to see them step in the right direction finally.
The other blurbs are behind the paywall for additional information about Nvidia and BESI estimates.