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Intel Cuts Fab Buildout by $4B to Pay Billions in Dividends

81 points by winterismute 4y ago

throwaway81523 4y ago
I wonder if Gelsinger is in trouble. Part of his pitch was that Intel was going to accept having lower profits than they could choose to have, for the sake of fab investments that would pay off later. The board may have said "No, Pat, pay out more dividends instead".
rad_gruchalski 4y ago
That kinda „explains” why they want the US gov to give them money for new fabs?
AinderS 4y ago
If Americans considered Intel an ally when passing the CHIPS Act.. with allies like these, who needs enemies?
- catchnear4321 4y ago
  Publicly traded companies only have one allegiance. Shareholders. Congress passed the act. Congress allied with Intel and the other companies. As representatives of the American people, of course. Congress has exceptional results with investing. If Americans considered Congress an ally… With representation like this, who needs a ruling class?
  - AinderS 4y ago
    > Publicly traded companies only have one allegiance. Shareholders. We have to either change this, or rely on a different kind of entity for economic activity. Because abandoning companies to be cannibalized by the financial class, or colonized from abroad, does not lead to prosperity.
    - arghwhat 4y ago
      Allegiance to shareholders does not mean that companies get cannibalized. "Abandoning a company to be cannibalized" means stunting growth which is useless to greedy shareholders. If the shareholder was okay with not having growth they wouldn't be invested in the first place. The main problem with allegiance to shareholders is the craving for financial growth at any cost, including deviation from the company's goals or disregard for users in profitable ways. A paper-clip maximizer.
      - catchnear4321 4y ago
        Allegiance to shareholders is also not created equally. Harming all shareholders is bad. Employees own shares in many cases, RSUs or otherwise. But companies aren’t thinking about context. Money for shareholder means satisfied shareholder. The end. Companies have to make sure most shareholders are happy. Or more accurately, that those holding the most shares are happy. That won’t be employees. It won’t be individuals. It will be other companies. Companies are allied with the companies that hold most of their shares. But companies are basically people so companies basically care about people. Really companies just care about companies. Save for the super elite, individuals aren’t on the radar. They get dividends incidentally. This all becomes an even bigger mess because companies can’t keep other companies (and politicians) happy if people aren’t supporting the companies, through purchases. But if the politicians can just provide a little support, by way of taxpayers…
    - hakfoo 4y ago
      I think it's less the problem of "shareholders" and more "short term shareholders." If you're holding for 10 or 20 years, you may well be considering things like "If we spend a dollar in R&D today, we get back twenty later", but the guy who's bailing after the next earnings report wants that dollar on today's books. We do a questionable job serving tha long-term investor. On a long enough term, most of the social-ethical-envrironmental investment strategies that are seen as niche can also be seen as prudent-- are you sacrificing the value of investors in 2050 by keeping a cavalier attitude on climate change today, or paying your contractors so poorly that they'll be unable to buy your future products? We have the short/long term capital gains tax divide, but there's no reason we couldn't tax short term gains at a much higher rate than conventional income, explicitly to force people to demand long-term corporate perspective.
  - gumby 4y ago
    > Publicly traded companies only have one allegiance. Shareholders. That's not a law, just a moderately recent convention: Milton Friedman in the 70s claimed that a company existed only for the good of its shareholders. And of course we've seen examples of this attitude from time immemorial. But remember the famous 1950s quote from the then CEO of GM: "what was good for our country was good for General Motors, and vice versa.” People usually twist it around the other way and claim that the company was saying it was more important than the country, but that's not what Wilson said. He made that statement as part of a speech (congressional testimony IIRC) saying that business needed to serve society.
    - catchnear4321 4y ago
      So a quote from 70 years ago, shortly after WWII. Important time for returning to something like normalcy after the war. Put our boys to work. But every publicly available statement made by a CEO is PR. Like it or not. Not always done with that intent, but usually with it in mind. Sure, the impact to employees has been felt more recently. But the attitude has been there before they were companies and employees. Kingdoms and subjects, plantations and slaves, whatever the case may be. Very old. This is just the latest skin. There’s always those parties that go against the current. So to respond to your CEO reference, I’ll throw out a more modern one. I’m having to go on what little I’ve gathered from the media, but Dan Price seems like the real deal. Even with what I said above. Can’t know, but the look is good. I buy it. I want to believe, even after learning I shouldn’t. Good companies can exist. Good people exist, and can lead companies. All of which can serve society, and benefit all individuals. “Can” isn’t enough. And there are far too few that ARE.
      - gumby 4y ago
        That is a very famous, widely discussed (and widely distorted quote) not some random comment. And your example reinforces my point. There is a sickness that spread from the Reagan era, but recognizing it is crucial to treating it.
        catchnear4321 4y ago
  - rightbyte 4y ago
    > Publicly traded companies only have one allegiance. Shareholders. That is the nominal one. But I feel more ofent than not the real alligience is to the board and lower manager class.
    - catchnear4321 4y ago
      The company can be co-opted by greedy upper management. (See DataRobot recently for an example). But that’s more like a company getting conned from inside the house. The company’s allegiance was sabotaged or subverted. Beyond that? Loyalty is to the biggest investors. Other companies. The CEO answers to the board, and the board tends to answer or connect to those companies. Sure, they profit, but that’s a pittance compared to the real money. Managers below that get their fraction of a fraction. And everyone else drools because that’s still real money to an individual.
skybrian 4y ago
I don't know anything about the semiconductor industry, but it's not hard to come up with a plausible argument for this: It makes sense to cut back on investment if they think there will be an oversupply of chips. In which case, returning the money to shareholders doesn't seem wrong, if they don't have a good way to invest it? It doesn't show much confidence in their ability to succeed and regain market share, though.
GoOnThenDoTell 4y ago
Why does Intel provide a dividend at all rather than investing in a better product
- Fargoan 4y ago
  Why purchase shares in a company if they don't pay dividends?
  - toomuchtodo 4y ago
    Share appreciation?
    - sudosysgen 4y ago
      Without dividends, the stock market is a zero-sum game.
      - toomuchtodo 4y ago
        Dividends are just a mechanism to realize profit without having to sell a security. Amazon and Google pay no dividends, for example, but the gains from their growth are very real. You just have to sell to realize the gain versus a dividend where you receive a payout instead of the price of your holdings increasing.
        dhdheysudh 4y ago
        sudosysgen 4y ago
        Amazon and Google engage in stock buybacks, which are dividends for all intents and purposes.
        colinmhayes 4y ago
        Buybacks are just dividends by another name
throwaway5959 4y ago
Is it too late to stop the CHIPs bill from becoming law? This is comically bad optics for Intel.
- colinmhayes 4y ago
  Seems to me that this just reinforces the need for the bill. Intel sees their market shrinking and responds by decreasing fab build out. The government wants Intel to increase fab build out so they have to subsidize it.
darkteflon 4y ago
Had high hopes for Pat Gelsinger, but this is one of the most egregious failures of corporate leadership I’ve ever seen, short of fraud. In the context of geopolitical changes since Russia’s invasion of Ukraine earlier this year, it’s also one of the most dangerous. We in the West have a long road ahead on semi manufacturing and we are falling over in a heap at the starting line.
- mandeepj 4y ago
  So, I guess they'd not be winning Apple's business any time soon https://appleinsider.com/articles/21/10/18/intel-ceo-hopes-to-win-back-apple-with-a-better-chip https://appleinsider.com/articles/21/10/18/intel-ceo-hopes-t...
- n7pdx 4y ago
  Trusting Intel to be the torch bearer of Western semiconductor manufacturing is a grievous mistake to begin with. Intel is crippled with incompetence and corruption, government money only contributes to the dysfunction.
- danielmarkbruce 4y ago
  This assumes Intel is constrained by capital. I don't believe that's even close to correct.
tryptophan 4y ago
Pardon my language, but how the fuck is it possible to ruin a company like Intel with 0 consequences like this? Something is deeply wrong with our economic/legal system. Why do semi-making jobs pay so poorly when they literally underpin everything? But kids out of college make 150k mashing NPM packages together? I blame free trade and the fact that the fed is allowed to engage in quantitative easing for a lot of these issues. Why care about the country when you can just play financial games instead?
- blackoil 4y ago
  Demand and supply, 100s of companies looking for that npm kid, while just a few For that semi engineer. Also yeah QE, billions and trillions with no place to invest so why not give few billions to startups with charismatic CEO and a good story.
- trasz 4y ago
  Intel got money so it can buy congressman. Normal citizens can’t, so their opinions don’t matter. You can see the skyrocketing profits for companies and at the same time dropping peoples income and their living standards. That’s inherent to how American idea of democracy works, but it got particularly bad over the past two decades.
natpalmer1776 4y ago
I suppose I would be the minority in saying "so what?" A 5% year over year increase in dividends that are a Very Big Deal to institutional investors that likely make up a large majority of their shareholders and hold the stock BECAUSE of those dividends. Meanwhile, capex is still ongoing and the reduce in spending could just as easily be seen as a bearish response to potentially poor new development plans. What if project costs were exceeding mid-term profit projections? Or potentially never going to be profitable? What if... ad infinitum. Responsible stewardship of a company like Intel requires accounting for a great many variables that do not get conveyed directly to shareholders. That dynamic is why representatives are a thing. That is why there are boards of directors. The fact that the government is handing them a subsidy, the fact that they cut some new development projects, and the fact that shareholder dividends saw a 5% increase can, and from my layman's perspective, probably are completely and totally unrelated, and questioning the validity of any one of those things due to the presence of the others goes into the territory of "need more info".
- adrian_b 4y ago
  At any other time that would not have looked so weird. Now Intel has been forced to use an accounting trick to avoid losses that would have been the double of those reported: "In the quarter ended in June, which we expect to be a very good one for AMD and Nvidia, Intel did not do so good. Revenues were down just a smidgen under 22 percent to $15.32 billion, gross margins were off 50.1 percent to $5.58 billion, and even with a $455 million benefit from taxes that Intel was keeping in its back pocket for a rainy day it posted a $454 million net loss. This is real red ink, and if it didn’t have that benefit and it had to pay some taxes, it could have easily been over $1 billion in losses." From: https://www.nextplatform.com/2022/07/29/intel-let-the-chips-fall-where-they-might/ https://www.nextplatform.com/2022/07/29/intel-let-the-chips-... It looks like now it should have been the time to prioritize saving their future over dividends.
  - danielmarkbruce 4y ago
    What if they can't save themselves? Paying out dividends at this point makes more sense than investing capital on which they'll earn a low or no return. Does anyone believe Intel's problems are a lack of capital?

81 points by winterismute 4y ago

I wonder if Gelsinger is in trouble. Part of his pitch was that Intel was going to accept having lower profits than they could choose to have, for the sake of fab investments that would pay off later. The board may have said "No, Pat, pay out more dividends instead".

rad_gruchalski 4y ago

That kinda „explains” why they want the US gov to give them money for new fabs?

AinderS 4y ago

If Americans considered Intel an ally when passing the CHIPS Act.. with allies like these, who needs enemies?

catchnear4321 4y ago
Publicly traded companies only have one allegiance. Shareholders. Congress passed the act. Congress allied with Intel and the other companies. As representatives of the American people, of course. Congress has exceptional results with investing. If Americans considered Congress an ally… With representation like this, who needs a ruling class?
- AinderS 4y ago
  > Publicly traded companies only have one allegiance. Shareholders. We have to either change this, or rely on a different kind of entity for economic activity. Because abandoning companies to be cannibalized by the financial class, or colonized from abroad, does not lead to prosperity.
  - arghwhat 4y ago
    Allegiance to shareholders does not mean that companies get cannibalized. "Abandoning a company to be cannibalized" means stunting growth which is useless to greedy shareholders. If the shareholder was okay with not having growth they wouldn't be invested in the first place. The main problem with allegiance to shareholders is the craving for financial growth at any cost, including deviation from the company's goals or disregard for users in profitable ways. A paper-clip maximizer.
    - catchnear4321 4y ago
      Allegiance to shareholders is also not created equally. Harming all shareholders is bad. Employees own shares in many cases, RSUs or otherwise. But companies aren’t thinking about context. Money for shareholder means satisfied shareholder. The end. Companies have to make sure most shareholders are happy. Or more accurately, that those holding the most shares are happy. That won’t be employees. It won’t be individuals. It will be other companies. Companies are allied with the companies that hold most of their shares. But companies are basically people so companies basically care about people. Really companies just care about companies. Save for the super elite, individuals aren’t on the radar. They get dividends incidentally. This all becomes an even bigger mess because companies can’t keep other companies (and politicians) happy if people aren’t supporting the companies, through purchases. But if the politicians can just provide a little support, by way of taxpayers…
  - hakfoo 4y ago
    I think it's less the problem of "shareholders" and more "short term shareholders." If you're holding for 10 or 20 years, you may well be considering things like "If we spend a dollar in R&D today, we get back twenty later", but the guy who's bailing after the next earnings report wants that dollar on today's books. We do a questionable job serving tha long-term investor. On a long enough term, most of the social-ethical-envrironmental investment strategies that are seen as niche can also be seen as prudent-- are you sacrificing the value of investors in 2050 by keeping a cavalier attitude on climate change today, or paying your contractors so poorly that they'll be unable to buy your future products? We have the short/long term capital gains tax divide, but there's no reason we couldn't tax short term gains at a much higher rate than conventional income, explicitly to force people to demand long-term corporate perspective.
- gumby 4y ago
  > Publicly traded companies only have one allegiance. Shareholders. That's not a law, just a moderately recent convention: Milton Friedman in the 70s claimed that a company existed only for the good of its shareholders. And of course we've seen examples of this attitude from time immemorial. But remember the famous 1950s quote from the then CEO of GM: "what was good for our country was good for General Motors, and vice versa.” People usually twist it around the other way and claim that the company was saying it was more important than the country, but that's not what Wilson said. He made that statement as part of a speech (congressional testimony IIRC) saying that business needed to serve society.
  - catchnear4321 4y ago
    So a quote from 70 years ago, shortly after WWII. Important time for returning to something like normalcy after the war. Put our boys to work. But every publicly available statement made by a CEO is PR. Like it or not. Not always done with that intent, but usually with it in mind. Sure, the impact to employees has been felt more recently. But the attitude has been there before they were companies and employees. Kingdoms and subjects, plantations and slaves, whatever the case may be. Very old. This is just the latest skin. There’s always those parties that go against the current. So to respond to your CEO reference, I’ll throw out a more modern one. I’m having to go on what little I’ve gathered from the media, but Dan Price seems like the real deal. Even with what I said above. Can’t know, but the look is good. I buy it. I want to believe, even after learning I shouldn’t. Good companies can exist. Good people exist, and can lead companies. All of which can serve society, and benefit all individuals. “Can” isn’t enough. And there are far too few that ARE.
    - gumby 4y ago
      That is a very famous, widely discussed (and widely distorted quote) not some random comment. And your example reinforces my point. There is a sickness that spread from the Reagan era, but recognizing it is crucial to treating it.
      - catchnear4321 4y ago
- rightbyte 4y ago
  > Publicly traded companies only have one allegiance. Shareholders. That is the nominal one. But I feel more ofent than not the real alligience is to the board and lower manager class.
  - catchnear4321 4y ago
    The company can be co-opted by greedy upper management. (See DataRobot recently for an example). But that’s more like a company getting conned from inside the house. The company’s allegiance was sabotaged or subverted. Beyond that? Loyalty is to the biggest investors. Other companies. The CEO answers to the board, and the board tends to answer or connect to those companies. Sure, they profit, but that’s a pittance compared to the real money. Managers below that get their fraction of a fraction. And everyone else drools because that’s still real money to an individual.

skybrian 4y ago

I don't know anything about the semiconductor industry, but it's not hard to come up with a plausible argument for this: It makes sense to cut back on investment if they think there will be an oversupply of chips. In which case, returning the money to shareholders doesn't seem wrong, if they don't have a good way to invest it? It doesn't show much confidence in their ability to succeed and regain market share, though.

GoOnThenDoTell 4y ago

Why does Intel provide a dividend at all rather than investing in a better product

Fargoan 4y ago
Why purchase shares in a company if they don't pay dividends?
- toomuchtodo 4y ago
  Share appreciation?
  - sudosysgen 4y ago
    Without dividends, the stock market is a zero-sum game.
    - toomuchtodo 4y ago
      Dividends are just a mechanism to realize profit without having to sell a security. Amazon and Google pay no dividends, for example, but the gains from their growth are very real. You just have to sell to realize the gain versus a dividend where you receive a payout instead of the price of your holdings increasing.
      - dhdheysudh 4y ago
      - sudosysgen 4y ago
        Amazon and Google engage in stock buybacks, which are dividends for all intents and purposes.
      - colinmhayes 4y ago
        Buybacks are just dividends by another name

throwaway5959 4y ago

Is it too late to stop the CHIPs bill from becoming law? This is comically bad optics for Intel.

colinmhayes 4y ago
Seems to me that this just reinforces the need for the bill. Intel sees their market shrinking and responds by decreasing fab build out. The government wants Intel to increase fab build out so they have to subsidize it.

darkteflon 4y ago

Had high hopes for Pat Gelsinger, but this is one of the most egregious failures of corporate leadership I’ve ever seen, short of fraud. In the context of geopolitical changes since Russia’s invasion of Ukraine earlier this year, it’s also one of the most dangerous. We in the West have a long road ahead on semi manufacturing and we are falling over in a heap at the starting line.

mandeepj 4y ago
So, I guess they'd not be winning Apple's business any time soon https://appleinsider.com/articles/21/10/18/intel-ceo-hopes-to-win-back-apple-with-a-better-chip https://appleinsider.com/articles/21/10/18/intel-ceo-hopes-t...
n7pdx 4y ago
Trusting Intel to be the torch bearer of Western semiconductor manufacturing is a grievous mistake to begin with. Intel is crippled with incompetence and corruption, government money only contributes to the dysfunction.
danielmarkbruce 4y ago
This assumes Intel is constrained by capital. I don't believe that's even close to correct.

tryptophan 4y ago

Pardon my language, but how the fuck is it possible to ruin a company like Intel with 0 consequences like this? Something is deeply wrong with our economic/legal system. Why do semi-making jobs pay so poorly when they literally underpin everything? But kids out of college make 150k mashing NPM packages together? I blame free trade and the fact that the fed is allowed to engage in quantitative easing for a lot of these issues. Why care about the country when you can just play financial games instead?

blackoil 4y ago
Demand and supply, 100s of companies looking for that npm kid, while just a few For that semi engineer. Also yeah QE, billions and trillions with no place to invest so why not give few billions to startups with charismatic CEO and a good story.
trasz 4y ago
Intel got money so it can buy congressman. Normal citizens can’t, so their opinions don’t matter. You can see the skyrocketing profits for companies and at the same time dropping peoples income and their living standards. That’s inherent to how American idea of democracy works, but it got particularly bad over the past two decades.

natpalmer1776 4y ago

I suppose I would be the minority in saying "so what?" A 5% year over year increase in dividends that are a Very Big Deal to institutional investors that likely make up a large majority of their shareholders and hold the stock BECAUSE of those dividends. Meanwhile, capex is still ongoing and the reduce in spending could just as easily be seen as a bearish response to potentially poor new development plans. What if project costs were exceeding mid-term profit projections? Or potentially never going to be profitable? What if... ad infinitum. Responsible stewardship of a company like Intel requires accounting for a great many variables that do not get conveyed directly to shareholders. That dynamic is why representatives are a thing. That is why there are boards of directors. The fact that the government is handing them a subsidy, the fact that they cut some new development projects, and the fact that shareholder dividends saw a 5% increase can, and from my layman's perspective, probably are completely and totally unrelated, and questioning the validity of any one of those things due to the presence of the others goes into the territory of "need more info".

adrian_b 4y ago
At any other time that would not have looked so weird. Now Intel has been forced to use an accounting trick to avoid losses that would have been the double of those reported: "In the quarter ended in June, which we expect to be a very good one for AMD and Nvidia, Intel did not do so good. Revenues were down just a smidgen under 22 percent to $15.32 billion, gross margins were off 50.1 percent to $5.58 billion, and even with a $455 million benefit from taxes that Intel was keeping in its back pocket for a rainy day it posted a $454 million net loss. This is real red ink, and if it didn’t have that benefit and it had to pay some taxes, it could have easily been over $1 billion in losses." From: https://www.nextplatform.com/2022/07/29/intel-let-the-chips-fall-where-they-might/ https://www.nextplatform.com/2022/07/29/intel-let-the-chips-... It looks like now it should have been the time to prioritize saving their future over dividends.
- danielmarkbruce 4y ago
  What if they can't save themselves? Paying out dividends at this point makes more sense than investing capital on which they'll earn a low or no return. Does anyone believe Intel's problems are a lack of capital?