After layoffs and pay cuts for employees, Intel has a new way to scrape cash it needs to build its multi-billion dollar chip-making factories, which the company claims is on track or ahead of schedule.
Intel on Wednesday (Feb. 22) announced it was slashing dividend to its shareholders by two-thirds, which the company will reinvest in shifting the business to a manufacturing-first model.
The dividend will add up to $0.50 per shareholder for the entire year. Intel has paid $80 billion in dividends – which Gelsinger characterized as excess cash – to shareholders since 1992.
Gelsinger said the dividend is an important measure of shareholder confidence in the company, and the regular dividend payouts will return once the company is on stable financial ground.
The move to preserve cash will be the latest in Intel’s restructuring of operations. Intel has already exited seven businesses, and is taking other steps that includes layoffs to save $8 billion to $10 billion by the end of 2025. Intel aims to save $3 billion this year.
The macroeconomic conditions deteriorated in the fourth quarter, which limited the company’s cash flow, said Pat Gelsinger, CEO of Intel, during a call today.
“We’ve been aggressively pursuing our cost savings initiatives to both save cash as well as to refine the business. I’ve asked the company to take temporary pay and compensation reduction,” Gelsinger said.
Intel needs billions of dollars to advance its manufacturing operations to cover five new nodes in four years. Historically Intel has advanced factories every two years, but the pace slowed down over the most recent 14nm and 10nm nodes after mismanagement and poor execution.
The company is opening its factories to outside customers after decades of largely using its factories to make its own chips. Intel now requires significantly more cash than it has in the bank to open the new factories.
Intel last year launched a co-investment program called Semiconductor Co-Investment Program to share the cost of building factories. The chipmaker last year signed an agreement with Brookfield Asset Management to invest $30 billion to expand manufacturing in Chandler, Arizona. Intel will hold a 51% share, with Brookfield holding a 49% share of the investment.
Intel is also negotiating with the U.S. and EU to get billions of dollars in taxpayer money to build its factories.
The idea of Intel taking taxpayer money to build factories, and then returning profits from it as dividend to its shareholders, or to buy back shares, has not gone down well with critics. The U.S. last year passed the CHIPS and Science Act, which opens billions of dollars in incentives for companies like Intel and TSMC to build foundries on U.S. soil.
Intel has already announced new factories near Columbus, Ohio, which U.S. President Joe Biden has used as a political weapon to promote his job-creation agenda. But Intel has already laid off 343 workers as part of its ongoing cost-cutting program, according to layoff tracking site Layoffs.fyi, with more job cuts expected to come.
On the call, Gelsinger tried to reassure analysts that the seeds for growth are already in place, and some signs of recovery are already bearing fruit.
“Sapphire Rapids has begun to stabilize our market share position for servers with clear CPU, AI, networking and security leadership and a strong ramp is well underway,” Gelsinger said.
Server chips codenamed Emerald Rapids, which will succeed Sapphire Rapids, are on track to be released in the second half of this year “and will drive even better performance,” Gelsinger said.
“Sierra Forest and Granite Rapids will build on that momentum in 2024 and are already showing good early process and product health,” Gelsinger said.
Intel’s finally making progress on server GPUs, and the Ponte Vecchio chip for the first time started bringing in revenue in the most recent earnings quarter, said Dean McCarron, principal analyst at Mercury Research.
High-performance GPUs like Ponte Vecchio will become a larger segment as AI becomes a mainstay in computing, Gelsinger said.
“When you view a broader GPU [market], we are gaining momentum with Ponte Vecchio in the marketplace now. For HPC and AI use cases … you’ll see us putting more emphasis on our GPU offerings over time,” Gelsinger said.