Slump in Intel stocks - Will the chipmaker manage to regain its standing?

In the world of technology, Intel, once a dominant player in the global chipmaking market, is currently grappling with a series of financial difficulties.

According to AJ Bell's Russ Mould, Intel's debt is further constraining its financial woes. The company's net cash pile peaked at $16 billion in 2004, but due to share buybacks, it has since been replaced by net borrowings. This financial situation is compounded by the force of inexorably falling revenue and margins at Intel, which looks inescapable.

In an attempt to cut costs, Intel announced a layoff of 15,000 employees and plans to slash costs by $10 billion next year. However, Robert Cyran for Breakingviews suggests that suspending the dividend is the right idea, but slashing investment and firing a large number of employees will make regaining the technological lead from TSMC even harder.

Intel's CEO, Pat Gelsinger, may be facing increasingly challenging circumstances at the company. The company's latest earnings were disappointing, with unexpectedly low revenue and profit-margin forecasts. This poor performance was further highlighted when Intel's stock slumped by 26% to a 15-year low on August 2nd, resulting in a loss of over $30 billion from the company's market value.

The US government's decision to revoke Intel's license to supply chips to Huawei Technologies in May has also added to Intel's struggles. In response, Intel is seeking to overhaul its business model with a push to become a major foundry player. The company has committed to spending tens of billions of dollars to build new factories for making chips for other companies.

However, the new factories are years away and have pushed up Intel's costs, hurting profitability. If Intel still had the $63 billion it spent on share buybacks, its ability to invest in defending its competitive position would be enhanced.

Intel's struggles are attributed to a series of missteps, including a focus on personal computer chips that caused it to miss the boom in demand for mobile phone chips. The company is also facing challenges in the field of artificial intelligence chip design, as it is reportedly "miles behind" competitors.

For decades, Intel dominated the global chipmaking market for personal computers, thanks to the "Wintel" alliance with software giant Microsoft. However, PC sales are falling, and demand for data centers is decreasing, prioritizing AI chips dominated by Nvidia. As a result, Intel lags behind competitors such as Nvidia and TSMC in the global chipmaking market.

The struggles of Intel serve as a reminder of the rapid pace of technological change and the need for companies to adapt to stay competitive.