Intel shares are trading higher on Monday after news that the U.S. Government may cut part of its funding from the CHIPs program.
The New York Times and Bloomberg are reporting significant developments today that could influence the company's struggling future.
According to the New York Times, the U.S. government is contemplating a reduction in its previously announced grant to Intel.
Intel was originally slated to receive $8.5 billion from the CHIPS and Science Act - a federal initiative to bolster domestic chip production - the grant is now expected to be less than $8 billion for Intel.
This decision could significantly impact Intel's ambitious plans to expand manufacturing capabilities within the United States. This includes the construction of new chip factories in Ohio, Arizona, and New Mexico. The company’s plans for those plants require investments exceeding $100 million.
The reduction appears to be partially offset by a separate $3 billion award that Intel received in September from the U.S. Department of Defense to produce advanced chips domestically.
Intel is one of the company’s that has committed to repatriating semiconductor chip production in as a defensive move for the United States.
However, the overall cut might also reflect the government's cautious stance due to Intel's recent operational missteps.
Earlier this year, the company disclosed delays in its Ohio manufacturing plants, pushing the expected operational start from 2025 to no earlier than 2027.
The delays come at a time when Intel's financial performance has been lackluster, particularly in comparison to competitors like NVIDIA and Advanced Micro Devices in the AI data center market.
Amid these challenges, Intel has initiated several cost-cutting measures, including the elimination of 15,000 jobs and the suspension of its quarterly dividend. The moves seek to stabilize Intel’s financial footing.
Despite these efforts, investor’s reaction to Intel's strategies shows a confusing outlook.
On one hand, the reduction in the federal grant led to concerns about the company's liquidity and long-term viability. On the other hand, investors seemed encouraged by other positive news on the strategic front.
Adding to the confusion - and today’s buying with the stock trading 3% higher - is the potential sale of Intel's Altera unit.
Bloomberg reports that Lattice Semiconductor (LSCC) is considering making an offer for Altera, which specializes in chips for telecom networks.
Intel has planned to sell a minority stake in this division to streamline operations and raise capital. However, the possibility of a complete divestiture could attract substantial interest and capital infusion from buyers.
Intel acquired for about $17 billion in 2015, but its value is complicated by its recent performance downturn. Altera’s revenue dropped 44% year-over-year to $412 million in the third quarter of 2023.
Although a sale might necessitate a large discount given these figures, the influx of capital could provide a much-needed boost to Intel's balance sheet and plans to move their chip manufacturing plans forward.
Intel is also exploring real estate transactions to further alleviate its financial strain.
The company announced plans to sell and lease back of its Folsom, California plant. That financing move could save money and generate cash from its substantial real estate holdings.
Intel shares have traded as low as $18 this year, close to the company’s nominal or face value.
Investors started to speculate that the company would start planning the sale of certain assets to raise capital to continue their manufacturing plans. Others speculated that Intel would become a takeover candidate in its entirety given the discount to share prices from management’s apparent missteps.
Shares are now trading nearly 40% higher than September’s low prices.
The stock is trading in a relatively healthy short-term technical pattern as Intel is above its bullishly biased 50-day moving average.
That said, the stock still faces overhead pressure from its 200-day moving average at $30.
Intel shares are also trading in a long-term bear market trend. The stock’s 20-month moving average – the trendline that marks a long-term bull or bear market – sits overhead at $33.
The combination of both the 200-day and 20-month moving averages in the $30-$33 range implies that investors will take profits in this price range.
Today's rally displays that Intel has some dry powder left to possibly pull the stock out of its long-term bear market trend.
The company will see short-term aggressive moves higher on good news faster than moves to the downside as most analysts and investors have heavily discounted Intel's outlook.
This means that the stock may have an easier path to $30, but overhead resistance at this price will be incredibly strong.
For that reason, expect Intel shares to continue their move to $30 over the next 4-6 months followed by the stock slipping back into its longer-term bear market trend.
The "Bottom Line" is that Intel shares are a long shot for outperforming the rest of the Semiconductor industry names.
