Intel Corp. is cutting its dividend by 66% as it deals with challenges in its business and a continued need for investment.
The chip company announced Wednesday that it will pay a quarterly dividend of $0.125 a share beginning June 1, whereas Intel’s INTC, -5.61% prior quarterly dividend was $0.365 a share.
“The decision to decrease the quarterly dividend reflects the board’s deliberate approach to capital allocation and is designed to best position the company to create long-term value,” the company said in a release. “The improved financial flexibility will support the critical investments needed to execute Intel’s transformation during this period of macroeconomic uncertainty.”
Intel added in the release that it’s “committed to maintaining a competitive dividend.”
Some analysts anticipated that Intel would be moved to slash its dividend in the wake of its most recent earnings report, which brought a sharp decline in revenue and continued margin pressure. Evercore ISI’s CJ Muse noted at the time that Intel changed its language on the last earnings call with management speaking of “maintaining a competitive dividend. Intel spoke of supporting “a strong and growing dividend,” two quarterly calls prior.
“Investors have been questioning whether (expecting) Intel would need to reduce its dividend payout—leaving us to believe this announcement, while negative, will not materially change investor sentiment,” Wells Fargo’s Aaron Rakers wrote after Wednesday’s announcement.
Even before the latest report, MarketWatch’s Philip van Doorn speculated that a dividend cut might be on its way given that Intel was expected to deliver negative free-cash flow in 2023 and 2024, a rarity in the chip sector.
The company is not only looking to regain its technological footing after years of missteps but also to establish a foundry business. It has sought to reduce costs broadly through layoffs, pay cuts, and other initiatives.
“While we will continue to prudently manage cash and capital outlays in the near term, we are setting the foundation for significant operating leverage and free-cash flow growth when we emerge from this period of outsized investments,” Chief Financial Officer David Zinsner said in Wednesday’s release.
Intel reaffirmed its first-quarter 2023 outlook, which calls for $10.5 billion to $11.5 billion in revenue and a 15-cent adjusted loss per share.
An earlier version of this article had the incorrect time period for the company’s guidance. It has been corrected.
This article was originally published by Marketwatch.com. Read the original article here.