Why Intel Stock Dropped 28% in August

Actions of Intel (INTC -8.80%) sank last month, largely because of a disastrous second-quarter earnings report that included subpar results, disappointing guidance, the elimination of its dividend and a restructuring plan that includes laying off at least 15 percent of its workforce.

The news dashed any hopes that Intel had made progress on what was already supposed to be a turnaround. Later in the month, the company lost a key executive who dismissed the company’s slow approach to the chip sector and said the company was unwilling to take risks. On the last day of the month, Intel got a reprieve after Bloomberg reported that the company is looking at potential strategic options, including separating the manufacturing business from its core chip design operation.

According to data from S&P Global Market Intelligence, stocks ended August down 28.2%. You can see its performance in the chart below.

INTC data by YCharts

Intel shocks investors

It’s hard for a supposed blue-chip stock like Intel to deliver as much bad news as the chipmaker in a single quarter, and the upshot of the report is that the company is struggling at a key moment in its industry, with growing demand for AI.

First, the company’s second-quarter results missed the mark as it continues to be hit by losses in its foundry division and growth remains sluggish in its core business segments.

Revenue in the quarter fell 1 percent to $12.8 billion, and adjusted earnings per share were just $0.02, down from $0.13 in the year-ago quarter.

Third-quarter guidance was also disappointing, with revenue of $12.5 billion to $13.5 billion, implying an 8% decline in the middle. It also forecast an adjusted loss per share of $0.03.

In addition to the poor results and guidance, the decision to cut its dividend has turned investors off, although it makes sense for cash conservation reasons. Finally, layoffs can sometimes please Wall Street, but in this case, the news that it was cutting 15 percent of its workforce was just another sign that the business is in disarray.

Image source: Getty Images.

Intel needs help

Later in the month, the company postponed its Intel Innovation conference and also lost a key executive. Investors seem encouraged that the company is considering a potential spin-off plan or reduction in capital spending, but no announcement has come from the company, so it seems speculative at this point.

In addition, the prospects for stocks to be removed from Dow Jones Industrial Average have grown significantly. At this point, it will take a lot of work to turn the business around and rehabilitate the stock, and investors could easily run out of patience again.