Intel’s new deal with Brookfield primarily means two things: The chip giant is lowering its build out cost for a shiny fresh factory, and its dividend is safe for the time being.
Intel announced on Tuesday that it would team with Brookfield to jointly invest up to $30 billion in the new Arizona a semiconductor fabrication plant. Intel is funding 51% and Brookfield 49%.
“Intel benefits via access to $15 billion in capital and Brookfield will share the cash flows of the fabs,” Citi analyst Chris Danely explained, referring to the foundries where chips are created. “The deal should be mildly accretive to Intel before the fabs turn on and mildly dilutive after they produce semiconductors. While the deal should help assuage concerns on Intel covering its dividend in 2023, we believe the bigger factor is Intel improving manufacturing. If Intel continues to lose share to AMD, we believe the company could be forced to cut capex to preserve the dividend.”
Danely, who has a neutral rating on Intel’s stock, is one of the first Wall Street analysts to mention outwardly Intel’s dividend as potentially not being safe in its current form.
At the same time, the dividend is unlikely to be at risk in the medium-term even as the company works through challenging PC market conditions and spends billions to build new factories to make chips for other companies.
Intel ended its most recent quarter with about $32 billion in cash and equivalents. The company has paid out roughly $5.6 billion in dividends in each of the past two years.
But concern on Intel’s dividend in 2023, as Danely suggests, is not without valid reason.
Intel told investors in late July it expects the total addressable market for PCs this year to plunge 10% amid a shocking second quarter earnings miss and full year cut to earnings guidance.
“We saw major inventory corrections on the part of our customers,” Intel CEO Pat Gelsinger said on Yahoo Finance Live.
The company also lost further market share in its key data center business to rival AMD, according to analysts.
Gelsinger said he believes the third quarter is the bottom for his business, with trends improving in the fourth quarter as PCs are bought for the holidays.
Intel’s stock — which yields more than 4% — is down 34% so far in 2022.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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Source: https://finance.yahoo.com/news/intel-dividend-30-billion-new-plant-100650128.html