Intel cuts dividend by 66% to lowest payout in 16 years

(Bloomberg) — Intel Corp., the largest computer processor maker, cut its dividend payment to its lowest level in 16 years in a bid to save money and focus on a turnaround plan.

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The company will reduce its quarterly distribution to investors to 12.5 cents per share, payable June 1, the chipmaker said in a statement Wednesday. Intel’s current quarterly dividend is 36.5 cents and is expected to cost more than $6 billion by 2023. The new payment brings Intel’s dividend back to a level not seen since 2007.

“The decision to cut the quarterly dividend reflects the board’s considered approach to capital allocation and is intended to best position the company to create long-term value,” Intel said in the statement. “The improved financial flexibility supports the critical investments needed to execute Intel’s transformation during this period of macroeconomic uncertainty.”

In its earnings report last month, Intel forecast one of the worst quarters in its history as a slowdown in PC sales plagues the semiconductor industry. Intel is cutting jobs and slashing management wages, while also slowing spending on new factories in a bid to save as much as $10 billion by the end of 2025.

Amid the turbulent market, Intel is spending big on a plan by Chief Executive Officer Pat Gelsinger to restore its leadership in the industry. The company has taken a particularly big hit by losing market share to rivals. Gelsinger is building new products and trying to take on bigger competitors in new markets.

Lowering payments to shareholders undermines Intel’s position in a growing competition among chipmakers to offer higher returns. Historically, companies in the industry have not paid dividends, reflecting the volatility of their cash flows amid large swings between industry abundance and shortages of more than $500 billion. That has changed in recent years and dividends have become important, not least because they demonstrate confidence in the stability of a company’s finances.

“Investors have questioned whether Intel should cut its dividend payment — leading us to believe that this announcement, while negative, will not materially change investor sentiment,” Wells Fargo analyst Aaron Rakers said in a note.

Intel stock, one of the worst performers on the Philadelphia Stock Exchange Semiconductor Index this year, has lost 42% over the past 12 months.

Intel’s current dividend yield of more than 5%, calculated by dividing its annual payout by share price, dwarfs that of chipmaker peers. The company paid its first dividend in 1992 and has increased it ever since. But Intel has since lost leadership to bigger-pocketed companies like Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co.

Separately, the company reiterated current period forecasts given at the end of January. First quarter revenue will be between $10.5 billion and $11.5 billion, with a loss, less certain items, of 15 cents per share.

Intel is also cutting its budget for spending on new plants and equipment this year. The company now plans to spend about 30% of sales, it said Wednesday. That compares to an early prognosis of about 35%.

(Updates with details throughout)

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