What Intel’s New Deal With Brookfield Means For Investors

Intel’s New Deal with Brookfield It mainly means two things: The chip giant is reducing construction costs for a shiny new factory, and its dividend is safe for the time being.

Intel announced Tuesday that it will partner with Brookfield to jointly invest up to $30 billion in Arizona has a new semiconductor manufacturing plant. Intel is sponsoring 51% and Brookfield 49%.

“Intel benefits through access to $15 billion in capital, and Brookfield will share the funds’ cash flows,” explains Citi analyst Chris Danely. “This deal should be supported gently for Intel before the delivery system is up and down after it has produced the semiconductors. Although the agreement should help allay concerns that Intel will dividend payment in 2023, but we believe the bigger factor is that Intel is improving production.If Intel continues to lose stakes to AMD, we believe the company may be forced to cut capital invest to preserve dividends.”

Danely, who has a neutral rating on Intel stock, was one of the first Wall Street analysts to mention that Intel’s dividend is ostensibly potentially unsafe in its current form.

At the same time, dividends are unlikely to be at risk in the medium term even as the company operates through challenging PC market conditions and spends billions to build new factories to produce chips for other companies.

Intel Corporation's Fab 42 processor production site is seen in Chandler, Arizona, US on October 2, 2020. REUTERS / Stephen Nellis

Intel Corporation’s Fab 42 processor production site is seen in Chandler, Arizona, US on October 2, 2020. REUTERS / Stephen Nellis

Intel ended its most recent quarter with about $32 billion in cash and equivalents. The company has paid out about $5.6 billion in dividends each of the past two years.

But concerns about Intel’s dividends in 2023, as Danely suggests, are not without good reason.

At the end of July, Intel told investors it expected this year’s total resolveable PC market to drop 10% amid shock second-quarter earnings and a full-year cut. lower than earnings guidance.

“We’ve seen major inventory adjustments from our clients” Intel CEO Pat Gelsinger said on Yahoo Finance Live.

The company also lost more market share in its key data center business to rival AMD, according to analysts.

Gelsinger said he believes the third quarter is bottom for his businesswith an improving trend in the fourth quarter when PCs are purchased for the holiday season.

Intel’s stock – which gives a return of more than 4% – has so far dropped 34% in 2022.

Brian Sozzi is a great editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and more LinkedIn.

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