Intel faces toughest moment in its 56-year-history

On the 30th local time, Bloomberg, citing informed sources, reported that U.S. semiconductor giant Intel is working with investment banks such as Goldman Sachs and Morgan Stanley to navigate what is described as the most challenging period in the company's 56-year history.

The report reveals that the company is discussing various possibilities, including splitting its chip design and manufacturing businesses and considering which factory projects might be closed. These discussions are currently taking place privately. The sources noted that Morgan Stanley and Goldman Sachs are providing advice on various options, which may also include potential mergers and acquisitions.

The sources also mentioned that these plans are expected to be announced at the board meeting in September. However, no major actions are anticipated from Intel at this time, as negotiations are still in the early stages. Bloomberg also reported that an Intel representative declined to comment, and Morgan Stanley and Goldman Sachs did not immediately respond to requests for comment.

Intel's Disappointing Earnings Report

At the beginning of this month (the 1st), Intel released a disappointing earnings report. For the second quarter of this year, the company reported revenues of $12.8 billion, a 1% year-over-year decline, falling well short of market expectations. Net profit turned into a significant loss of $1.6 billion, compared to a profit of $1.5 billion in the same period last year. The company also forecasted that third-quarter revenue would fall below expectations.

This disappointing report led to a sharp decline in Intel’s stock price. On the day of the report, Intel’s shares plummeted 26.06% to $21.48, causing a market value drop of approximately $32 billion—the largest single-day drop in over 40 years. Bloomberg reported that discussions about taking measures to reverse the situation became urgent.

Along with the earnings report, Intel announced a layoff of 15,000 employees, representing 15% of its total workforce, as part of a $10 billion cost-cutting plan. Additionally, starting from the fourth quarter, Intel will suspend dividend payments to shareholders.

According to Reuters, the major restructuring plan has intensified market concerns, and Intel is also facing legal troubles. A week after the second-quarter earnings report (on the 8th), shareholders initiated a class-action lawsuit against Intel’s CEO Patrick Gelsinger and CFO David Zinsner. The lawsuit accuses Intel of fraudulently concealing company issues and making significant false or misleading statements about its foundry business, leading to poor performance, mass layoffs, and the suspension of dividends.

Intel's chip foundry business has been officially spun off

This year, Intel's chip foundry business was officially spun off. However, the massive losses incurred by this division have attracted widespread attention. According to a filing Intel submitted to the U.S. Securities and Exchange Commission (SEC) in April, the newly independent chip manufacturing unit, Intel Foundry, reported revenue of $18.9 billion for 2023, a 31% year-over-year decline, and an operating loss of $7 billion.

While Intel has been heavily investing in upgrading its foundry business, it has faced intense competition in the PC and server chip markets, resulting in a significant revenue drop. Intel's 2023 revenue decreased by $24 billion compared to 2020, the year before Patrick Gelsinger took over as CEO. Even a semiconductor giant like Intel is struggling to bear such a heavy financial burden.

In response, Singapore’s Business Times cited research analysts from investment firm Global X, who noted: “As chip buyers increasingly shift towards AI chips, Intel is witnessing erosion in its traditional data center business. Meanwhile, Intel is undergoing a challenging and costly transformation of its foundry model.”

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