Investors focus on Intel restructuring; Can it stay in the Dow?

Intel (INTC) is reportedly considering selling off some of its business units as part of a broader strategy to address its ongoing financial challenges. The company has been under significant pressure following a disappointing Q2 earnings report, which revealed substantial revenue declines and a gloomy outlook for the third quarter. Among the units Intel may consider selling is its programmable chip unit, Altera, which has struggled to perform in recent quarters. This potential sale is part of a larger cost-cutting plan that Intel's CEO, Pat Gelsinger, is expected to present to the board later this month. The plan aims to streamline operations and avoid divesting its Foundry business, which, despite significant losses, remains a critical differentiator for Intel in the highly competitive semiconductor market.

One potential bidder for the Altera unit is Marvell Technology (MRVL), a move that could have significant strategic implications for both companies. Marvell is seen as a likely candidate due to its strong presence in telco and data center markets, which would complement the industrial and defense markets that Altera serves. Acquiring Altera could also enhance Marvell's capabilities in the rapidly growing AI custom silicon space, a segment that is becoming increasingly important for semiconductor companies. Analysts at Raymond James have pointed out that the higher gross margins associated with FPGA (field-programmable gate array) products, like those from Altera, would be particularly attractive to Marvell, further incentivizing a potential bid.

In addition to the potential sale of Altera, Intel is also considering further reductions in capital spending, particularly concerning its factory expansion efforts. The company has already delayed its Ohio plant by two years, pushing production back to 2027, and there is speculation that Intel may abandon its planned $32 billion factory in Germany. These cost-cutting measures are seen as necessary for Intel to navigate the financial difficulties it currently faces, including high failure rates in its recent CPU generations and competitive disadvantages in the AI sector.

However, there is growing concern that these efforts may not be enough to stabilize Intel's position, especially given the possibility that the company could lose its status as a member of the Dow Jones Industrial Average. Intel, which joined the Dow during the dot-com boom in 1999, has seen its stock price plummet nearly 60% this year, making it the worst performer in the index. If Intel were to be removed from the Dow, it would be a significant blow to the company's reputation, further complicating its efforts to regain its footing in the highly competitive semiconductor industry.

The potential loss of Dow status is particularly concerning given that Intel has already taken drastic steps to address its financial woes, including suspending its dividend and announcing layoffs that will impact 15% of its workforce. Despite these measures, there is skepticism among analysts and former board members that Intel's actions will be sufficient to turn the company around. The possibility of Intel being ousted from the Dow has been looming for some time, and its recent disappointing performance may be the final factor that prompts the index's selection committee to make a change.

In summary, Intel's potential sale of its Altera unit and the interest from Marvell Technology highlight the company's ongoing struggles and the difficult decisions it faces in its turnaround efforts. While divesting non-core assets like Altera could provide some financial relief, the broader concerns about Intel's future, including the potential loss of its Dow Jones status, suggest that the company has a long road ahead as it seeks to regain its position in the semiconductor industry.