Intel is reportedly in discussions with large investors to secure additional funding through a discounted share offering, according to sources familiar with the matter. On Wednesday, Intel's stock plummeted 6.99% to $23.54, a low not seen since August 13.
Previously, reports suggested that the Trump administration considered acquiring a 10% stake in Intel through a "subsidy-for-equity" scheme. Additionally, Japan's SoftBank Group announced a $2 billion investment in Intel on Monday at $23 per share, making it Intel's fifth-largest shareholder. These developments initially drove Intel's shares up by 7% on Tuesday, reaching a five-month high.
Discounted Placement Amidst Financial Challenges
Analysts suggest that Intel's negotiations with other major investors, occurring just days after receiving $2 billion from SoftBank, indicate ongoing financial pressure. The discounted share placement, potentially at a lower valuation, has fueled market concerns about shareholder dilution, triggering Wednesday's stock sell-off. The market reaction highlights the delicate balance Intel must strike between securing needed capital and maintaining investor confidence.
SoftBank's investment at $23 per share already represented a roughly 3% discount from Intel's closing price of $23.66 on Monday. Intel is now seeking to expand this financing method. Some analysts highlight that discounted placements are relatively uncommon in the semiconductor industry, where significant and stable funding is generally required for product development and manufacturing. Large semiconductor firms often prefer debt financing or strategic partnerships to secure long-term capital. Frequent discounted placements could erode market confidence, suggesting Intel's decision reflects the severity of its current financial challenges.
Strategic Missteps and the Foundry Business
Years of strategic missteps have left Intel lagging behind competitors such as TSMC, AMD, and Qualcomm in chip manufacturing and design. In 2024, Intel reported an annual loss of $18.8 billion due to losses in its chip foundry business, marking its most significant loss since 1986. This reinforces the need for substantial investment to regain competitiveness.
These financing attempts represent Intel's latest effort to reverse years of declining sales and shrinking market share. Sources indicate Intel requires these funds to develop products that genuinely meet evolving customer needs. Patrick Moorhead, founder and chief analyst at Moor Insights and Strategy, suggests that SoftBank’s $2 billion investment and potential U.S. government subsidies might be insufficient. He estimates Intel needs upwards of $40 billion to develop next-generation chip technology.
While Intel has secured investments and expects further funding, whether this capital can reverse its current trajectory remains uncertain. Optimistic analysts see significant upside potential. Ben Reitzes from Melius Research suggests that the "Stargate" initiative led by SoftBank, aimed at investing in U.S. AI infrastructure, could benefit Intel’s chip manufacturing business. Further, with SoftBank holding a 90% stake in UK chip designer ARM, opportunities might arise to steer clients toward Intel’s chip foundry services.
Reitzes also argues that potential U.S. government stakes in Intel could attract customers, as many companies aim to curry favor with the government by prioritizing Intel products. Regarding concerns over share dilution and earnings per share, Reitzes describes the SoftBank investment and potential government acquisition as accretive dilution, ultimately benefiting shareholders in the long run, raising Intel's target price from $21 to $25. However, opinions remain divided. Some analysts believe that Intel's core issue isn't necessarily funding but rather finding customers for its manufacturing business. Others are concerned that continued U.S. government support for Intel could weaken its development capabilities, leading to a lack of innovation, inefficiency, and increased costs, potentially harming Intel's long-term growth.
ZH
