Venerable technology leader Intel (NASDAQ:INTC) is testing investors’ patience. And shares of Intel stock are paying the price.
The irritation stems from the company’s persistent failures to keep up with significant changes that are occurring in the landscape of computer chips.
These are not cosmetic changes made to dress up appearances. No, these are key developments in the evolution of computing systems.
Do these failures by Intel mean the sun is setting on Intel’s place in the industry?
Intel Keeps Stumbling
In some ways, Intel is like a sleepy person who stubs his toe while getting up in the middle of the night. A normal person would learn from this jarring, unwelcome experience and either remembers where the leg of the dresser is (for future reference) or makes an adjustment and moves it.
After all, it hurt. But if the sleeper doesn’t make the right adjustment and stubs that tender toe again and again, well, it sure isn’t the furniture’s fault.
Unfortunately for investors, Intel appears very slow to properly adjust.
In July, the company announced that its 7 nanometer computer chips won’t arrive as promised. Look for them in a couple years, Intel says. The market didn’t shrug this time. Intel stock fell some 16 percent in one day.
“It’s hard to put into words how unsettling and costly this latest impediment truly is,” Matt McCall, a technology industry specialist, writes in InvestorPlace.
Intel’s history of false starts and delays in delivering tech advances being offered by its competitors have the potential to cripple the company’s long-term success. Investors are justified in their concerns.
Change in the Executive Suite
One thing about Intel sets it apart from others in the industry: it manufactures its chips. But the nagging delivery delays finally claimed a victim among Intel’s leadership.
Venkata Renduchintala, the company’s chief engineering officer, is losing his job.
The signal is that Intel will be looking to “out-source” at least some of its manufacturing. The hope is a third party, likely in Asia, will be able to do what this American company can’t.
This may not play well in today’s highly charged political arena. But, Intel has little choice. It must find a solution – and fast – or it will be left in the dust by changes in technology.
A Play for Value Investors
The company, meanwhile, is showing savvy in managing its shares and reacting to the stock market.
Intel announced recently it is increasing its stock buyback program to the tune of $10 billion. The company’s strong balance sheet will easily fund the program, especially since Intel stock declined so notably.
The repurchase program also provides a lift to the price of INTC shares. A stock that has fallen from the 60s to the 40s now seeks stability around $50.
Management clearly hopes the combination of a lower stock price and dividends will lead value and income investors to bet on Intel.
Mark Hake, a contributor to InvestorPlace, recently praised Intel’s move.
“Intel stock will benefit from this buyback program since it represents a significant return of capital to shareholders,” Hake writes.
The Bottom Line on Intel Stock
Intel’s inability to deliver the next-generation chips that are demanded by computer consumers is a colossal failure. This is not the first time Intel has missed the boat. In 2018, delivery of its 10 nanometer chips also failed to be delivered in a timely manner.
Intel’s history of innovation and high-quality manufacturing in the U.S. has bought the company a lot of goodwill, which is now in danger of being squandered.
Is this consistent failure the result of poor design, ineffective leadership, or a combination of the two?
The technology industry can be a forbidding arena with little tolerance for an ability to keep up. Intel is in danger of becoming an also-ran.
If you own Intel shares, holding on for better days will test your patience. It may not be time to sell and look for a better alternative, but the clock is ticking. Value-stock hunters surely are tempted and should go into this with their eyes wide open.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C. On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
