Sorry, Intel doesn’t deserve the benefit of the doubt

Intel (INTC -8.80%) Shares fell 9.5 percent on Friday after Bloomberg reported the chipmaker was considering strategic options after shares tumbled on a second-quarter earnings report that fell short of expectations.

Its shares fell 26 percent on Aug. 2 after the company posted disappointing results, gave a disappointing forecast, eliminated its dividend and announced a restructuring that included plans to cut 15 percent of its workforce.

The news and the market’s response prompted a round of introspection at the chipmaker, which unsurprisingly led to the company seeking help from investment bankers.

Intel is now working with Goldman Sachs and Morgan Stanley as it weighs a range of options that include separating its chip-making business from its product-design business, pulling back on new plant openings and expansions, and even a possible sale or merger.

The company plans to present a range of options to the board in September.

Image source: Getty Images.

A premature celebration

Investors often applaud announcements of troubled businesses exploring their strategic options, but that phrase usually refers to a potential sale of the company. That would be nearly impossible for Intel.

Even so, it’s rare for a stock to jump on such news as much as Intel did on Friday.

Investors are clearly hungry for anything that can be interpreted as good news for the struggling chipmaker’s stock, and if you squint hard enough, you can imagine how some of these strategic changes could lift the stock. Intel’s chip-making foundry operation is a money pit, for example, and reducing expansions or spinning off the business altogether could help stem losses or unlock value in its more successful chip design business.

Of course, that would fly in the face of everything Chief Executive Pat Gelsinger has promised recently — turning the foundry business into a profit machine appears to be the linchpin of his strategy.

For now, the talk cited by Bloomberg is just talk, and buying the stock based on that talk seems premature at best and naïve at worst.

Intel’s problems are still growing

What’s gotten less attention this past week from investors is the only real news to come out of Intel since its earnings report: It just lost one of its most valuable executives. Lip-Bu Tan, a veteran of the semiconductor industry, left the board frustrated by a “bloated workforce, risk-averse culture and lagging AI strategy,” according to Reuters.

The departure of Tan, who once led the chip software company Cadence Designleaves the board without an important source of technical expertise; most of Intel’s board members come from outside the semiconductor industry.

Additionally, Intel’s plans to cut more than 15,000 jobs seem to have created a bit of a political stir. The federal government has promised the company nearly $20 billion in grants and loans to build new chip factories in the US. Earlier in the week, U.S. Sen. Rick Scott (R-Fla.) asked Gelsinger for more information about the company’s layoff plans, saying: The government should “protect taxpayer dollars from going to companies that could not meet standards high for US manufacturing and job creation”.

Any sign that Washington might revoke or scale back Intel’s multibillion-dollar aid package would likely hurt the stock.

Intel investors need to shut up

Any turnaround Intel can pull off won’t be easy and will likely take years to implement. Its foundry business, which posted a $3 billion loss in the second quarter, is an albatross. It lagged behind rivals like Nvidia and AMD in the AI ​​chip niche, and its reputation as a Silicon Valley dinosaur only seems to be strengthening as Tan’s comments and the second-quarter disaster indicate.

Friday’s share price may offer some reassurance to long-suffering shareholders, but it would be a mistake to see it as the first step in a recovery. After all, short-term moves in a broken stock are like rats on a sinking ship. It doesn’t matter which way they run if the ship is still going down.