Intel (NASDAQ: INTC) shares popped by 9.5% on Friday after Bloomberg reported that the chipmaker was considering strategic options after the stock's collapse on a second-quarter earnings report that fell short of expectations.
Its shares plunged by 26% on Aug. 2 after the company posted disappointing results, gave an underwhelming forecast, eliminated its dividend, and announced a restructuring that included plans to cut 15% of its workforce.
The news and the market's response prompted a round of introspection at the chipmaker that has led, not surprisingly, 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 includes separating its chip manufacturing business from its product-design business, pulling back on new factory 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 cheer announcements about troubled businesses exploring their strategic options, but that phrase usually refers to a potential sale of the company. That would be all but impossible for Intel.
Even so, it's rare for a stock to jump on that kind of news as much as Intel did on Friday.
Investors are clearly hungry for anything that can be construed as good news for the ailing chipmaker's stock, and if you squint hard enough, you can imagine how some of these strategic shifts could boost the shares. Intel's chip-making foundry operation is a money pit, for example, and cutting back on expansions or spinning off the business altogether could help stem losses or unlock value in the more successful chip-design business.
Of course, doing that would fly in the face of everything Chief Executive Officer Pat Gelsinger has promised recently -- turning the foundry business into a profit machine seems to be the linchpin of his strategy.
For now, the discussions cited by Bloomberg are just talk, and buying the stock based on that talk seems premature at best, and naive at worst.
Intel's problems are still mounting
What's gotten less attention during the past week from investors is the only real piece of news to come out of Intel since the earnings report: It just lost one of its most valuable directors. Lip-Bu Tan, a veteran of the semiconductor industry, quit the board in frustration at Intel's "bloated workforce, risk-averse culture, and lagging artificial intelligence strategy," according to Reuters.
The departure of Tan, who once led chip software company Cadence Design, leaves the board without an important source of technical expertise; most of Intel's board members hail 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 U.S. Earlier in the week, U.S. Senator Rick Scott (R-Fla.) asked Gelsinger for more information on the company's layoff plans, saying the government should "protect taxpayer dollars from going to companies that could not meet high standards for U.S. manufacturing and job creation."
Any sign that Washington might revoke or cut Intel's multibillion-dollar aid package would likely hammer the stock.
Intel investors need to buckle up
Any turnaround Intel might achieve won't come easy, and would likely take years to play out. Its foundry business, which has a loss of $3 billion the second quarter, is an albatross. It has fallen behind rivals like Nvidia and AMD in the AI chip niche, and its reputation as a Silicon Valley dinosaur only seems to be hardening as the comments from Tan and the second-quarter disaster indicate.
Friday's stock price pop might offer some solace to long-suffering shareholders, but it would be a mistake to see it as a first step in a recovery. After all, short-term movements 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.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Cadence Design Systems, Goldman Sachs Group, and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
