What Intel’s new deal with Brookfield means for investors

Intel’s new deal with Brookfield means mainly two: the chip giant is slashing its manufacturing costs for a shiny fresh factory, and its dividend is currently safe.

Intel announced Tuesday that it will invest up to a combined $30 billion in a new Arizona semiconductor fabrication plant in collaboration with Brookfield. Intel is funding 51% and Brookfield 49%.

“Intel will share the profits and cash flow of Brookfield Fabs through access to $15 billion in capital,” explained Citi analyst Chris Denly, referring to the foundry that made the chips. “The deal should be light for Intel before the fabs are operational and lightly thin once the semiconductors are produced. While the deal will help ease concerns over Intel covering its dividend in 2023, we believe ​—that Intel is improving manufacturing. If Intel continues to lose stake to AMD, we believe the company may be forced to cut capex to preserve the dividend. could.”

Denly, which has a neutral rating on Intel’s stock, is one of the first Wall Street analysts to externally mention Intel’s dividend as potentially not safe in its current form.

At the same time, dividends are unlikely to be at risk in the medium term, even as the company works through the challenging conditions of the PC market and spends billions. Build new factories to make chips for other companies,

Intel Corporation’s Fab 42 microprocessor manufacturing site is seen in Chandler, Arizona, US October 2, 2020. Reuters/Stephen Nellis

Intel ended its most recent quarter with approximately $32 billion in cash and equivalents. The company has paid approximately $5.6 billion in dividends over the past two years.

But concerns over Intel’s dividend in 2023, as Danley suggested, are not without valid reason.

Intel told investors in late July that it expects the total addressable market for PCs to decline 10% this year amid a reduction in second-quarter earnings and a full-year cut in earnings guidance.

“We’ve seen huge inventory improvements on the part of our customers,” said Intel CEO Pat Gelsinger on Yahoo Finance Live.

According to analysts, the company lost further market share to rival AMD in its flagship data center business.

Gelsinger said he believes the third quarter is the bottom line 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 a great editor and Anchor at Yahoo Finance, follow soji on twitter @BrianSozzi and on linkedin,

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