Intel Corp.’s stock just had its worst daily drop in decades, dropping 26%. This took more than $30 billion off the market value of the company.
The company is in the middle of a $10 billion cost-cutting plan that includes ending the dividend, laying off a lot of workers, and cutting capital costs. All of this is happening while the company is burning cash and facing strong margin pressure.
These problems seem to be enough to make investors very worried, but maybe Intel’s stock INTC -26.06% drop would have been even worse if the company didn’t have one important thing going for it: Investors may think that the company will be safe in the end, even though it is having problems. This is because Intel is a domestic chip maker at a time when governments want to support local chip companies.
In a note to clients, Bernstein’s Stacy Rasgon said, “In other situations, we believe we would now be having ‘going concern’ conversations with clients.” “In this way (and maybe the only good thing), subsidies and partner contributions, along with spending cuts and the suspension of dividends, look set to add about $40 billion to Intel’s cash on hand by the end of 2025. This suggests that the company will survive (in some form) to keep fighting.”
The point of funding is interesting. Early this year, Intel made a deal with the U.S. government that gave the business both direct funding of $8.5 billion and loans of $11 billion through the Chips Act. That’s a government program meant to improve the U.S.’s place in chip manufacturing. It shows that officials are giving more thought to how to help U.S. companies compete in this important field.
Taiwan is an important part of the chip supply chain because it is home to Taiwan chip Manufacturing Co. Ltd. TSM -5.26%
Because of how important semiconductors are becoming and how unstable geopolitics are, countries, including the U.S., are putting more emphasis on making chips in the U.S.
Intel is a very important company for the United States because it makes its own chips. He said in a note to clients, “Our country and government cannot afford to let [Intel] fail and really struggle over the long term.” Klein is an analyst at Mizuho.
Klein says that the U.S. has a number of companies that help the semiconductor business by making silicon. The U.S. also has some very important companies that make semiconductor equipment.
Of course, Intel stands out. Klein wrote that the U.S. government “has a vested interest in [Intel] being a real player in foundry and winning at the cutting edge.” Intel is a “long-term strategic asset that is too important to lose.”
Geopolitics made investors worry again just a few weeks ago that it could mess up the supply line for semiconductors. Former President Donald Trump said that Taiwan had taken over the U.S.’s chip business. This was one of the things that caused chip stocks to drop sharply afterward. However, Intel’s stock did not fall during that session, which shows that investors see the company as one that could benefit if nationalism becomes more important in the industry.
Intel’s problem is similar to that of Boeing Co. BA -4.69%, another American giant that has been having trouble with performance that has put pressure on its finances. Of course, Boeing isn’t a big bank like the “too-big-to-fail” banks, but it is a major player in the defense and aerospace markets and works with Airbus to form a pair of dominant companies.
Boeing is a well-known company that employs a lot of people. It’s possible that the U.S. government wants both Boeing and Intel to do well.
