Intel’s Dividend Cut Frees Up Cash for IDM 2.0 Strategy but Execution Risk Remains Palpable; $35 FVE

On Feb. 22, Intel announced its board of directors decided to reduce its quarterly dividend by about two thirds to $0.125 per share from $0.365 per share. The firm has been plagued by weak PC demand, competitive pressures from a resurgent AMD, and ongoing execution issues that have culminated in market share loss and margin compression. Although we still support Intel’s IDM 2.0 strategy to fix its manufacturing, we view this dividend cut as necessary given the material capital expenditure requirements of its turnaround plan. Intel’s dividend yield had risen north of 5% prior to the cut, which would have been tough to maintain given its weaker cash flow generation in the near term. We estimate Intel’s capital expenditures will amount to at least $20 billion in 2023. Longer term, we expect the firm’s net capital intensity to be about 30% of sales. The firm’s roughly $6 billion in dividend payouts was valuable cash that we think is better served by being put toward investments in new process technologies and R&D.