News from February 2023. Intel (NASDAQ: INTC) cut its quarterly dividend by about two-thirds, from 36.5 cents to 12.5 cents per share, to conserve cash. The company was preparing a large expansion of chipmaking capacity in the United States and had also cut pay and bonus programmes for its executives and staff. Intel described the move as a prudent approach to capital allocation, meant to give it the financial flexibility for the investments its turnaround needed during a period of economic uncertainty.
Key takeaways
- On 22 February 2023 Intel reduced its quarterly dividend from $0.365 to $0.125 per share, a cut of about 66%.
- The cut freed roughly $4 billion a year, by analysts' estimates, for factory building.
- Intel was targeting $3 billion of cost savings in 2023, rising to $8 billion to $10 billion a year by the end of 2025.
- The share price reaction was small, as the cut had been widely expected.
- Later, in August 2024, Intel suspended the dividend altogether.
The cut in numbers
| Item | Before | After |
|---|---|---|
| Quarterly dividend per share | $0.365 | $0.125 |
| Annualised dividend per share | $1.46 | $0.50 |
| Reduction | $0.24 per quarter, 65.8% | |
A worked example: with roughly 4.1 billion shares outstanding at the time, saving $0.96 per share per year comes to about $4 billion a year. That is the cash Intel kept for investment instead of paying it out.
Why Intel needed the cash
Intel's strategy under chief executive Pat Gelsinger, known as IDM 2.0, meant building leading-edge factories for its own products and for outside foundry customers. This included two new fabs in Arizona and a new manufacturing site in Ohio, each costing tens of billions of dollars. At the same time, PC and data centre demand had fallen sharply in late 2022, and Intel's revenue and margins were under pressure.
Intel aimed to cut $3 billion in annual operating costs in 2023, rising to as much as $10 billion by the end of 2025. Gelsinger told analysts that the company had concluded the highest dividend payer should not also be the highest capital investor.
Where the CHIPS Act fits
The US CHIPS and Science Act, signed in August 2022 under the Biden administration, set aside about $39 billion in manufacturing incentives to reduce US dependence on imported chips. Intel was expected to be one of the largest recipients, but in February 2023 no grants had yet been awarded, and incentives would cover only part of the cost of each fab. Even with that support in prospect, Intel had to fund most of its building programme itself.
The policy background was the concentration of advanced chip making in Taiwan, where the large majority of the most advanced logic chips are made. The US government saw that as a risk to supply, including the risk of military action by China, and wanted more leading-edge capacity at home. Intel's US expansion was its answer to that.
How the market reacted
News of the dividend cut led to a 1.2% decline in Intel's share price in premarket trading on Wednesday 22 February, as reported at the time, and the shares ended the day a little over 2% lower. That followed a 5.6% fall on Tuesday, driven by fears of higher interest rates and their effect on the wider market, particularly technology shares. Many investors had expected a cut after Intel's weak fourth-quarter 2022 results in January, which limited the reaction.
What happened next
The lower dividend did not last. On 1 August 2024, alongside weak second-quarter results, Intel announced that it would suspend the dividend from the fourth quarter of 2024, cut more than 15% of its workforce and reduce spending by more than $10 billion in 2025. The shares fell about 26% the next day, one of their worst sessions in decades. Intel said it remained committed to a competitive dividend over time as cash flows improved. These later events are given here as context for the 2023 decision.
What a dividend cut signals
For a mature technology company, a dividend cut usually means management expects investment needs to exceed free cash flow for several years. In Intel's case the bet was that new process nodes and a foundry business would restore its competitive position. For readers following the semiconductor industry, the 2023 cut and the 2024 suspension are useful markers of how expensive it is to compete at the leading edge of manufacturing.
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