American tech icon Intel (INTC) cutting its dividend on Wednesday is not a total shock to a money manager.
“Intel is an interesting story because they have very specific issues with their business. They’ve been losing market share to their competitors and I think cutting their dividend is an indication” of that, Monica Erickson, an investment-grade corporate credit manager at DoubleLine Capital. he told Yahoo Finance Live (video above).
Intel said it would cut its dividend to 12.5 cents from 36.5 cents, a reduction of about 65%. Shares only fell slightly, around 1% in midday trading, on the news as investors were preparing for a cut.
The cut comes amid several challenging quarters for the company, highlighted by further loss of market share to rivals such as Advanced Micro Devices (AMD) and higher costs to build new chip manufacturing facilities.
A post-COVID slowdown in the PC market has also affected sales.
The company’s fourth-quarter sales fell 32% from a year earlier. Sales in the key segments of client computing and data centers fell 36% and 33%, respectively.
The company paid $6 billion in dividends in 2022. But with cash flow falling by about $14 billion year-over-year and fourth-quarter results under pressure, some on Wall Street questioned whether it was time Intel reduce the dividend.
Intel CEO Pat Gelsinger told Yahoo Finance Live several weeks ago that the company was committed to a “healthy and competitive dividend.” But Gelsinger refused to support the dividend payment at its current previous level.
“Intel is one of those companies where, and we’ve been looking at it, I think their fundamentals have had a hard time turning that around,” DoubleLine’s Erickson said. “They’re focused on their balance sheet and making sure it’s strong enough to be able to go to market when they need to raise capital.”
Brian Sozzi is the executive editor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.
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