Intel Sued By Shareholders After Dividend Suspension, Stock Price Crash

Chip giant Intel is facing a consequence of its shock second quarter results, which triggered a huge decline in its share price and market value.

Reuters reported that Intel was sued on Wednesday by shareholders who allege the chipmaker fraudulently concealed problems that led it to post weak Q2 results, slash jobs and suspend its dividend payment.

Last week Intel shocked Wall Street when it posted a net loss for Q2, coupled with a revenue decline and weak forecast for Q3 below analyst expectations.

Shock results, challenges

Matters were compounded when Intel CEO Pat Gelsinger admitted in a memo to staff that the firm’s “costs are too high, our margins are too low”, and he confirmed the firm would axe 15,000 jobs, after the 5 percent job losses in 2023, as well as a previous round of job cuts in October 2022.

Gelsinger also signalled an ongoing struggle to turn around Intel’s fortunes, which involve creating a foundry business, but also carrying on with heavy investments in new plants and R&D.

Gelsinger had implemented the turnaround plan (called IDM 2.0) in March 2021, and it is designed to regain the company’s competitive edge, and help it focus on revitalising its manufacturing capabilities (including manufacturing chips for other com

However industry observers believe it will take years to realise the plan to turn around Intel’s foundry business, and many expect TSMC to maintain its foundry lead in the coming years.

Gelsinger’s confirmation of the problems at Intel, coupled with weak forecasts and the suspension of dividend payments to investors, triggered a collapse in Intel’s share price, which in turn caused its market value to sink more than $32 billion in a single day.

Shareholder lawsuit

Now Reuters has reported that shareholder have filed a proposed class action against Intel, as well as CEO Patrick Gelsinger and Chief Financial Officer (CFO) David Zinsner in a San Francisco federal court.

Shareholders allege they were blindsided when Intel revealed on 1 August that its so-called foundry business for making chips on contract for outsiders was in their words “floundering,” costing billions of dollars extra even as revenue declined.

They said the Santa Clara, California-based company’s materially false or misleading statements regarding the business and its manufacturing capabilities inflated its stock price from 25 January to 1 August 2024.

Intel had no immediate comment, Reuters reported.