After its market value evaporated by $32 billion in a day, Intel was sued by shareholders for fraudulently concealing the company's problems

The Paper

2024-08-08 12:56Posted on the official account of Shanghai The Paper

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01Intel shareholders filed a class-action lawsuit against the company in federal court in San Francisco, alleging that it fraudulently concealed the company's problems.

02 Due to the poor progress of Intel's foundry business disclosed in the financial report, the company's market value evaporated by more than $32 billion in one day after the release of the financial report.

03In addition to Intel, CEO Patrick Kissinger · and CFO David · Zinsner are also listed as defendants.

04 Shareholders believe that Intel's material false or misleading statements about its business and manufacturing capabilities between January 25 and August 1, 2021 pushed up its stock price.

05Due to problems in Intel's foundry business, a number of Wall Street institutions have downgraded Intel's ratings, making it the least optimistic semiconductor company among analysts.

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United States chip giant Intel Corp. has been accused by shareholders of "fraudulently concealing problems with the company."

On August 7, local time, according to foreign media reports, Intel shareholders filed a class action lawsuit against Intel in federal court in San Francisco. Shareholders said Intel "fraudulently concealed the company's problems" that led to weak results, layoffs and suspension of dividends, and the company's market value evaporated by more than US$32 billion (about 229.8 billion yuan) in a day after the release of its latest earnings report. In addition to Intel, Intel CEO Patrick Gelsinger and CFO David Zinsner ·· David Zinsner are also named as defendants.

Shareholders pointed out that Intel's financial report disclosed on August 1 showed that its foundry business was not going well, and operating costs were rising despite declining revenue, which caught the company's shareholders off guard. They believe that Intel's materially false or misleading statements about its business and manufacturing capabilities drove up its stock price between Jan. 25 and Aug. 1 of this year.

Intel has not yet responded to this matter. On the 7th, Intel (Nasdaq: INTC) shares fell 3.63% to close at $18.99 per share, with a total market capitalization of $81.2 billion. According to Wind data, Intel's stock price has fallen 61.94% so far this year.

The question about Intel's foundry business dates back to 2021. At that time, Pat · Gelsinger was appointed CEO of Intel. He launched a restructuring plan to spin off Intel's semiconductor manufacturing operations and make it a contract foundry to serve Intel's own chip business and external customers.

In 2024, Intel's chip foundry business will be officially spun off. But the business's huge losses have received widespread attention, according to a filing Intel filed with the United States Securities and Exchange Commission (SEC) in April, the independent chip manufacturing unit "Intel Foundry" achieved revenue of $18.9 billion in 2023, down 31% year-on-year, with an operating loss of $7 billion.

And on August 1 this year, Intel announced its financial results for the second quarter of fiscal year 2024, which were far worse than expected. The company's revenue in the second quarter was 12.83 billion US dollars, a year-on-year decrease of 1%; Net loss was US$1.6 billion, turning into a loss year-on-year; Non-United States GAAP net income was $100 million, down 85% year-on-year. Diluted earnings per share (EPS) were $0.02. Intel's operating expenses in the second quarter were $5.6 billion, up 2% from $5.5 billion in the year-ago quarter.

At the same time, Intel gave disappointing guidance, expecting revenue in the range of $12.5 billion to $13.5 billion in the third quarter of 2024, well below the consensus of $14.35 billion, and expecting a GAAP loss per share of $0.24 and a non-GAAP loss of $0.03 per share in the third quarter. At the same time, in order to improve cash flow, Intel announced a layoff of more than 15% of its workforce, affecting about 15,000 people.

The financial report also shows that the product business revenue, which is Intel's core business, was $11.8 billion, a year-on-year increase of 4%. Other businesses, including Intel Foundry, FPGA (Field Programmable Gate Array) and autonomous driving unit Mobileye, performed poorly, with total revenue of $968 million, down 32% from $1.419 billion in the same period last year. Operating loss was $35 million, turning into a loss year-on-year. Separately, Intel's foundry business achieved revenue of $4.3 billion in the second quarter, an increase of 4% year-on-year.

After Intel's earnings report, several Wall Street institutions downgraded Intel, making it the least optimistic semiconductor company among analysts. In addition, analysts have also sharply lowered their earnings forecasts for Intel. Over the past week, analysts' consensus estimates for Intel's 2025 net profit have fallen by more than 40%, while the consensus estimate for revenue has fallen by nearly 10%.

Stacy Rasgon, a senior analyst at Bernstein, said Intel's third-quarter outlook was "terrible" and the company's worst ever. Jim Kelleher, an analyst at Argus Research, said that even after the recent sharp drop in stock prices, "we no longer see Intel's current share price level as attractive".

In addition, for Intel's investors, on the 7th, there was another disappointing news: according to relevant sources, Intel had discussed investing in OpenAI in 2017 and 2018. At the time, executives at the two companies discussed various options, including Intel's plan to buy a 15 percent stake in OpenAI for $1 billion in cash, or for Intel to take a stake in OpenAI and sell the hardware to it at cost price.

However, Intel ultimately decided to walk away from the deal, in part because its CEO at the time, Bo·b Swan, believed that generative AI models would still take a long time to reach the market, meaning it would be difficult for Intel to recoup its costs quickly. At the same time, Intel's data center division also rejected plans to provide OpenAI with products at cost price.

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