Intel's Turnaround Will Take Time

The chip giant recently slashed its dividend, freeing up funds for its growth strategy

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Feb 28, 2023
  • Intel is facing intense competition in its existing business lines from AMD.
  • The technology giant is looking to turn things around with a new growth strategy.
  • 2023 is a pivotal year for Intel as it seeks to navigate internal and external challenges.
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Intel Corp. (

INTC, Financial) announced a reduction in its quarterly dividend last week, marking the first time it has decreased payments in 30 years.

The move did not come as a surprise to many analysts and investors as the company has lost market share to competitors and struggled financially over the past several years. To change course, Intel must make significant capital investments to remain competitive. While the turnaround strategy is in motion, it may be a while before the market starts to see a difference.

Implications of cutting the dividend

Intel reduced its dividend from 36.50 cents to 12.50 cents per share, ending its eight-year streak of hikes.

The company has established itself as a reliable dividend payer over time, cultivating interest among income investors. In contrast, its main competitor, Advanced Micro Devices Inc. (

AMD, Financial), does not pay a dividend, focusing instead on investing cash flow into the business.

While Intel struggled to keep up with the competition's innovation, its dividend became less sustainable as its performance lagged. Over the past three quarters, the company's revenue has decreased significantly, posting double-digit declines.

In the fourth quarter of 2022, sales figures were considerably lower than in the prior-year period, decreasing 28%. The company's main segments have reported a dramatic decline in revenue, with a 34% dip in client computing and 41% decrease in the data center segment.

From a cash flow perspective, Intel paid about $6 billion in dividends in 2022. The dividend cut will enable it to save around $4 billion, which can then help fund its growth strategy.

Further, Intel's dividend was not covered by its cash flows in 2022. The company generated $15.4 billion in cash from operations last year. Combining capital expenditures and dividend distributions for the year, Intel spent about $31 billion, which led to a negative free cash flow position.

If the chipmaker had implemented a dividend cut last year, the adjusted free cash flow of -$4.1 billion reported for 2022 would have been completely covered.

Overall, the dividend cut is a proactive measure to help the company prioritize its investments in the future. It will likely pave the way for bigger developments, like an internal foundry.

Macroeconomic headwinds

For many investors, Intel is suffering because of its inability to compete with AMD and other rivals.

While that is true, a constantly changing competitive landscape and strong negative macroeconomic headwinds facing the broader economy are additional obstacles.

For instance, lower consumer demand from the U.S. and Europe, along with a notable increase in worldwide stock, has resulted in decreased shipments of personal computers. According to Gartner, PC shipments dropped 28.5% in the fourth quarter of 2022 compared to the same period a year earlier. Additionally, 2022 saw an overall 16.2% decline in shipments globally.

Furthermore, recent reports from Morgan Stanley (

MS, Financial) revealed the PC market has plummeted to its lowest level since 2006. This led Intel to decrease its yearly estimates to 249 million shipments, compared to prior expectations of 261 million.

Losing steam

Intel has faced significant difficulties in recent years due to substantial market share growth by AMD, particularly within the x86 architecture CPUs space, which is dominant for desktops, laptops and servers.

AMD has been on a roll domestically and globally with its central processing unit sales. Data from Mercury Research shows AMD ended 2022 with 31.3% of the market under its control, an impressive jump of 5.7 percentage points over the prior year.

In addition, the company has held its own in the data center business. AMD's data center revenue increased 63% last year to $6 billion. The business unit helped offset overall weakness in the PC market by improving revenue. Meanwhile, Intel’s data center CPU revenue dropped by 16% year over year in 2022.

As part of its turnaround strategy, Intel plans to improve its competitive position going forward. This includes releasing new chips in the Raptor Lake processor series. The company has also begun developing new chips to help manage supercomputers, one of the industries that will benefit most from artificial intelligence.

If the rollout of these new processors is successful, Intel could regain some market share. However, it needs to execute its strategy successfully. The chip giant was supposed to start mass-producing its next-generation Sapphire Rapids processors in 2022. However, it had to delay production to 2023.

These sorts of delays need to be avoided moving forward if it truly wants to turn things around.

The turnaround strategy will take time to materialize

To tackle some of Intel's challenges, management laid out a three-year plan focusing on cost-saving measures to achieve stable and lucrative growth by 2025.

Last October, Intel announced a reorganization of its operations, dividing chipmaking from design projects. This will result in an estimated $3 billion of cost savings by 2023 due to efficiency gains. Further, the company announced its plans to adopt an internal foundry operating model by 2024.

Intel is firmly devoted to ensuring its progress, with the ability to forgo expensive initiatives or adjust its financial plans if it should need to conserve costs. These budget plans are not unchangeable.

The company has established nine teams of engineers to drive data-driven improvements. Each team is tied to performance metrics and incentives to reward employees for their progress.

CEO Pat Gelsinger recently reported that Intel is back on track with its manufacturing process upgrades and aims to deliver five new manufacturing processes over the next four years. He believes investing in the right projects is essential for the IDM 2.0 strategy. As a result, new product launches are expected to happen between 2023 and 2024.

Nevertheless, recent company indications point to a turnaround in the latter half of this year and increasingly positive trends by 2024. Therefore, Intel will likely remain firmly in transition until that time.


All in all, 2023 will be a make-or-break year for Intel. During this time, it will face major challenges as it restructures and tackles internal as well as external issues.

To ensure long-term success, Intel needs to demonstrate progress is being made by executing well in the coming quarters. Monitoring cash flows and profit margins will determine whether the recent financial improvements are sustainable.

However, as they say, the proof of the pudding is in the eating. Investors will want evidence the strategy works before they pour their capital into this stock. Until that happens, price momentum is likely to remain weak.


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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