2024-08-03 03:00:02
Intel just served up a wave of very bad news for investors.
The stock of Intel (INTC -26.06%) is getting crushed in Friday’s trading. The company’s share price was down 29% as of 10:30 a.m. ET today, according to data from S&P Global Market Intelligence.
Intel published its second-quarter results after the market closed yesterday, and sales and earnings missed Wall Street’s expectations. Making matters worse, the semiconductor company also issued weak guidance, announced extensive layoffs, and said that it would be suspending its dividend.
A disastrous quarter
For the second quarter, Intel reported adjusted earnings per share of $0.02 on sales of $12.83 billion. The performance fell far short of the average analyst target, which had called for per-share earnings of $0.10 on revenue of $12.98 billion.
Intel’s results were very disappointing, and they arrived in conjunction with more bad news. As part of extensive cost cutting, the company will lay off 15% of its workforce. It will also suspend its dividend in the fourth quarter.
Intel is firmly in turnaround mode, and it’s looking for ways to cut costs and become a leaner operating machine. Suspending the dividend in order to refocus capital on driving sustainable growth could have payoffs down the line, but investors clearly hate the move. The scope of the upcoming layoffs also raises some big questions.
Many tech companies have implemented substantial employee reductions in recent years, but the scope of Intel’s upcoming reduction is notable. With the company trying to reposition itself to take advantage of the rise of artificial intelligence (AI) and other big trends, letting so many employees go raises questions about its competitive positioning. At the very least, it suggests that management believes the business has been way overstaffed in areas that aren’t poised to drive strong performance.
Intel issues dreary guidance
For the third quarter, Intel is guiding for sales to come in between $12.5 billion and $13.5 billion. Prior to the company’s update, the average Wall Street target had called for the business to deliver sales of $14.39 billion in the period.
The chip specialist’s earnings guidance was even more distressing. It expects to post an adjusted loss of $0.03 per share in the third quarter. For comparison, the average analyst estimate was for an adjusted per-share profit of $0.30 in the period.
Investors had been hoping that the company would see stronger sales and margin tailwinds from AI-enabled computers and data centers, but it looks like these anticipated catalysts will fail to materialize in the near term.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
