If Intel cuts its dividend the stock will crater. Since executive compensation is stock-based, tied to the stock performance, or both, there's an obvious incentive to keep the dividend going.
The dividend has become more political than normal. In finance theory, a dividend is supposed to be a paid-out return. If you're cutting salaries to pay the dividend that means that you don't have enough surplus...by definition.
Intel's sales aren't going to get any better anytime soon, so the cut is coming eventually. They're starting a death spiral, one that'll be hard to escape.
Your comment only says that it was mostly in RSU, and since the stock had been going down it will likely be worth 1/3 by the time it vests.
Even so, 25% of 1.1m is pretty much negligible, certainly compared with the 5% normal employees get cut
I agree a 25% cut for him is nothing. I was pointing out the falsehood of him making $179M. He made about $10M in 2021 and will likely not see most of the remaining amount as he will not hit the share price in time.
I misunderstood the part of the RSU's: I thought you meant that by the time they vest they will be worth considerably less than $179M, because the stock price has gone down. However if I understood you correctly now, these will be worth 0 if the stock price doesn't hit a certain value in time
If they're cutting executive salaries by the largest amount it sounds good on paper but doesn't really do anything because their pay is, as you said, stock based.
So, unsurprisingly, very skeezy unless they change the largest factor in their pay.
Investors already know this is deception and the market will value the company accordingly.
Intel should face the music and pay the price. Suspend the dividend entirely. (AMD last paid a dividend back in 1995!)
Growth stocks shouldn't be dividend stocks. That signals they have nowhere else to deploy the capital and are returning profits to investors. A buyback would be a better way to return cash to investors.
Intel's 5%+ dividend is insane anyway. That percentage yield on a non-REIT, non-PTP, non-cyclical (energy, etc.) business is very unhealthy and points to how anemic the stock is.
This. I've had one pay cut in my career, and it immediately made me just up and leave. I don't know why one would tolerate such a thing, unless there was significant up-side still on the table.
I have heard about companies doing this in times of economic downturns to prevent layoffs. If that was the cause and it was communicated as such and temporary I'd be willing.
In Germany this is known as "Kurzarbeit" (literal translation: short work). The company reduces the work hours of employees and the pay gets cut proportionally. The cut hours will be paid by the state at a rate of 60% (67% for workers with children, the rate is the same as unemployment).
So if a worker's hours get cut by 50%, they still get paid 80-83.5% of their wage. The company can choose to get the employees' pay back to 100% if they pay the difference, which sometimes happens if the hours are cut because there is not enough work and not because the company is in financial distress.
This helped quite a lot of companies to stay in business during COVID.
Kurzarbeit is specifically for the industry ("Fertigung") so that the large production sites can survive when they're not getting enough orders to put everyone to work.
I admit that it's been heavily misused during Corona though, as every large corporation wanted to legally steal a little money from the state.
Not sure that I'm right, but I have the impression that for companies that are strongly driven by "shareholder vale" (like Intel as it appears), if before the pay cut it is thought that cutting jobs would give a net benefit (again in terms of shareholder value only), shortly after the pay cut they will think so again/still think so, even if the pay cut was justified by being able to avoid layoffs in this way.
There are still plenty of opportunities out there. Layoffs are a social contagion that do very little, if anything, for a company’s financial health. This is all about the trend and trying to “discipline” labor. But it won’t work, especially this time because the US doesn’t have decent childcare (many mother won’t return to the workforce for a year or more) and has blocked millions of immigrants who would normally have entered the country the past several years.
That wouldn’t be a problem for engineers who are good at networking or the interview song and dance, but plenty of talented engineers aren’t particularly good at those things.
The company will lose some talent, sure, but let’s not pretend this isn’t a strategic time for a layoff or pay cut.
>> If Intel cuts its dividend the stock will crater
Not necessarily. It really makes zero difference to the valuation of a company. Investors really punish companies that can barely cover their dividend (or worse have to borrow). If earnings are bad and revenues are not growing, the dividend is just a hokey shell game that works for about 5 minutes.
Depends on the investor. There is an entire class of investor that is focused on stocks that reliably deliver a dividend. I wasn't aware that Intel had joined old-economy companies like oil, but I also don't fully understand the dividend investor mindset, as I can't figure out a tax situation that makes it appealing...
> I also don't fully understand the dividend investor mindset
That interesting, because I don't understand the mindset of investors who are just trading stocks like baseball cards. They don't seem to care what the company actually produce, just that the numbers tell them that the stock can sell for a little more next year.
Divided makes a lot of sense, because it keeps yielding money, for the same initial investment. So it's just extra money, but it's money you can actually spend. Sure you pay taxes on the divided, but you still hold the stock and can sell that at a late time.
Honestly I feel that it problems are the companies that never pay divided. The investors then depend on buy-backs or trading to recover their investment. This has created investors that do not care about the companies they invest in. The companies can go broke tomorrow and that's fine, as long as they can sell their stocks before it happens.
Studies have shown (take this with a grain of salt because I heard this from a podcast), that dividend stocks and non-dividend stocks have roughly equal returns in the end, with dividend stocks faring slightly worse.
This is because dividend stocks tend to appreciate less.
So taking $X in dividends every six months ends up being the same as selling $X of your portfolio every six months in the end.
Except that there are often different tax rates between capital gains and dividends. Even if there weren't tax rate differences, reinvesting dividends effectively compounds the tax rate annually, whereas the capital gains tax is a simple rate the year you realize the gain.
Though, in a tax-free retirement account, it's moot.
It is really just a matter of what a company does with its earnings. The options are: 1) invest in the business (including acquisitions, etc), 2) stockpile cash and 3) pay dividends.
If you want dividends simply sell a portion of your holdings every quarter.
When one focuses solely on dividend yield and not total return, which includes capital appreciation, it's a sign they don't really what's going on.
Where do you think the dividends are coming from? Straight from the company's market cap.
By preferring companies that consistently pay high dividend yields you're selecting for larger and established companies that have no better way to reinvest the money.
This may result in a fine choice if you want income, but the important distinction is not because of their dividend yield... it's because of their positions as market leaders.
Thus you may do just as well by selecting those large market leaders that pay no dividends but are reinvesting heavily.
That's not how it works for a publicly traded company in a free market.
Historically announcing a dividend has usually caused more people to be interested in buying, which increases your market cap correspondingly.
Yes, of course. Many investors want low risk, inflation proof investments with good dividend yields. However, Intel seems like a poor choice for such investors regardless if they temporarily prop up the dividend via cuts that will inevitably cause harm in the future. After all, what are the chances that Intel will become a higher performing organization as a result of this?
REITs and telcos are a much better choice for this investor class.
Taxes aren't ideal, but a brief philosophical defense of the dividend investor mindset:
Before the 1920s stock bubble, buying stock in a company was buying a portion of the company's future free cash flow in return for investment. The value of a stock was fundamentally coupled to running a profitable business. The dividend was the point.
The 1920s saw a major shift of valuation philosophy to a speculative mode, focusing on the price of a stock. Now, occasional crazy things happen where the price of a stock can shift dramatically even without change in the dynamics of the underlying business. Prices should reflect future earnings... but they often don't. Portfolio construction and indexing are protections against this, but the underlying philosophy goes even further in treating stock prices as random walks with underlying market beta, not as real businesses. Indexing punts out of real valuation.
I won't defend "dividend investing" with weird dividend manipulation, but I really do like having an alternative valuation model: the value of an investment is not the result of an increase in price since my purchase of that asset, but instead my recurring cash flow yield from owning that asset. I certainly have money in index funds and speculative assets, but I get a lot from a yield based valuation philosophy instead of price based valuation:
- Prices are heavily manipulated and favor insiders and funds, not individual investors.
- It feels more connected with reality.
- The growth of passive investments probably poses systemic risks (Mike Green's talks and interviews are great) and I don't want to piss in the pool too much. Yield based valuation makes me more comfortable making active investments.
- Easier to value different asset classes against each other, for example buying a house to rent out vs stocks. The valuation is my dollar yield per time per dollar invested.
- Boomers retiring and pulling money out of the system plus decay of globalization will put heavy deflationary forces on markets in the coming years. I don't feel like a price based approach to valuation provides clear guidance on how to navigate investments other than "be smart". A yield based approach lets me walk away with a return even if stocks stay flat or go down.
Pretty much all of the above comes from the book Getting Back to Business by Daniel Peris. Bit dry and dense, but very thought provoking.
Have you considered the structural implications of INTC float held by dividend ETFs alone[1], and how certain fund managers would be compelled to take action if all of a sudden Intel just stopped distributing a dividend? E.g. compare INTC holdings of Vanguard VYM[2] v. VanEck SMH[3] for about 5 minutes.
> It really makes zero difference to the valuation of a company.
Are you sure[4]? This is a bold, unsupported assertion without a single cite, as if to imply that valuation isn't a subjective craft practiced by people from diverse walks of life.
FWIW when I worked at Intel their 401k match was also in Intel Stock so there is that. (I do not know if they still do that) And yes, when I was there in '84 they were doing pay cuts to keep layoffs to a minimum.
What does surplus even mean with respect to wages? You could always pay your employees more! So what you mean is surplus is when you pay the market rate wages which in turn suggests the minimum amount of money the company should pay to ensure it gets the workers it needs.
If they cut the salaries and still enough people stay, then the money they saved still is surplus by that definition.
“Gets the workers it needs”
Clearly it doesn’t, since Intel couldn’t even save itself during a chip shortage when prices were sky high. They’re getting smoked by AMD and TSMC, in terminal decline much like the mismanaged Motorola of old. It certainly doesn’t have the leadership it needed, so if anyone should have their pay cut, it’s the fat cats at the top who financialized the company a la GE and ran it into the ground.
You are forced to pay tax when you get a dividend. Buybacks allow you to sell over time and achieve the same thing but with preferential tax treatment in most jurisdictions.
Or more importantly not sell at all and not be forced to pay tax when you are just going to re-invest the dividend.
Dividents are political, as well as stuff like who owns the company and executive policy and rewards and so on. We just tend to not talk about it a lot, or even see it as a political problem, even though these things underlie a huge part of our society
When bailed out banks paid bonuses it was understandably unpopular, but there was a certain logic that retaining talent optimized performance of the remaining bank, and therefore it was ultimately in the interest of taxpayers.
It seems surprising that Intel either doesn't think that retaining top talent is in the interest of shareholders, or thinks that investors aren't able to understand the investment. I would assume that investors who are still invested in Intel were holding out for the prospect that Intel would recover its former glory, but maybe it is mostly investors interested in near term dividend yields, or institutional investors that are sensitive to metrics other than something that is difficult to quantify like narratives or some notion of employee quality.
I don’t know who is invested in Intel that's betting on anything but a high risk high reward underdog story comeback. Intel already was undercompensating to the point of driving the talent out of their company to begin with. These wage cuts are a sign for investors to flee faster because management lacks coherence.
Management seems to be betting on a strategy of promising the world to gain government subsidies while in reality cutting costs and letting the business wither and die and I don’t know if that justifies the valuation.
I wonder if they just became terminally risk averse.
The thing that made them big is pretty obvious: high-margin premium priced x86 CPUs, which is a position they were able to hold for decades due both to manufacturing excellence and being able to shepherd the standard. They simply can't do it anymore-- execution has stumbled, and the market for x86 is gradually weakening, especially in spaces outside the cut-throat, lower margin, consumer/corporate desktop "it must run Windows and my line-of-business software/Call of Skyrim" vortex.
They could have been using decades of margin to build and consolidate positions in other segments of the market, just to be sure that the next clever new device comes out with an Intel chip, even if it's non-x86. They didn't.
Rather than, say, taking the ARM licenses they ended up flogging and building a competitive mobile CPU on their leading process, they invented weird Atom chips that ended up in like 3 phones.
Okay, flash is huge now, but it's a low margin game maybe not worth their investment. But they chucked out Optane, which still had some possibility as a "halo product" and for some commercial price-is-no-object markets.
It remains to see how sticky Arc graphics will be; they got a boost by the tight market conditions last year where people would grudgingly take any card they could afford. Will people come back to them out of explicit preference? I also wonder if the Larrabee/Xeon Phi adventure set them back or ahead-- trying to make a GPU architecture out of x86 was an interesting take on "GPUs are hard to program", but did it yield a lot of useful knowledge?
> I wonder if they just became terminally risk averse.
> They could have been using decades of margin to build and consolidate positions in other segments of the market.
That seems pretty simplistic. Optane and Larrabee were bold efforts. (Heck, so was Itanium). It's not like they didn't try throwing money and R&D at things. But that isn't always enough.
> Rather than, say, taking the ARM licenses they ended up flogging and building a competitive mobile CPU on their leading process, they invented weird Atom chips that ended up in like 3 phones.
They made a decent effort with Xscale too, to be fair.
> They made a decent effort with Xscale too, to be fair.
Sure, but they threw it away about a year before the iPhone came out.
Yeah, they did try a lot of bold efforts, but they've pretty much all been mis-steps. They always had factions that were "x86 forever" and when things weren't going great those factions would come in and say "hey, why are we working on this thing that's not our x86 bread-n-butter?" and they'd either kill it or they'd only half-heartedly keep it going until the underinvestment killed it.
The line-of-business software is quickly turning into a web browser accessing an internal server cluster, and just about any chip can run that nowadays.
A lot of server workloads also aren't about maximizing flops/Watt or iops/Watt, but rather setting up DMA between the disk controller and the network card and having a low idle power, to get the most network throughput per Watt. A lot of the high-end computation is also about handing off data to the GPU and having a low idle power.
It took Intel way too long to get the power consumption on the Atom processors down (not ops/Watt, but total Watts), back when Atom had a chance in the phone market. (A difficult task, which is why I bought ARM Holdings stock shortly after Android came out because I realized (1) nearly everyone was going to soon have a smartphone and (2) whether iPhone or Android won, it was going to be very difficult for Intel to get competitive in the smartphone market fast enough to prevent ossification of the market around ARM. Unfortunately, SoftBank took ARM private and closed out my trade.)
Now, the same dynamic of the low-end x86 processor eating its way up the stack to threaten the high-margin mainframe and RISC servers is playing out with low-end ARM eating its way up the stack and displacing a lot of uses for the high-margin x86 server chips.
Man, remember when Intel Xscale was the hot shit for anything mobile? They completely owned the high-end market and then threw it away just a year before the iPhone released.
> Intel already was undercompensating to the point of driving the talent out of their company to begin with.
Yep. Intel salaries were already on the low side. To some extent they could get away with this in the past because many of their locations were outside of silicon valley in places where there really weren't a lot of (or any) other companies where you could work at the same level. For example, say you worked at their Folsom, CA or Hillsoboro, OR locations - if you were going to change to a different company that pretty much meant you were moving. But now that a larger proportion of jobs are remote that strategy for keeping salaries low isn't going to work.
If you’re predicting a major decline of globalism, then betting on a domestic firm in an extremely economically important sector that is currently extremely reliant on globalism doesn’t sound that crazy.
What stops the Americans from simply stealing (or buying) TSMC or Samsung or whatever technology with how deep their fingers are into those companies and starting up fabs as needed? Even if the world "Deglobalizes" overall does that really mean that America maintaining its influence over countries like Taiwan and Japan and South Korea is not an option if the issue is important enough? America also has AMD/Nvidia for the chip design side of the business.
Intel could be valuable to America but the problem is the damned word could and it's not essential.
There are many reasons why Koreans are angry with the US, and some are related to semiconductors.
After Intel sold its NAND division to SK Hynix, South Koreans were upset because the US government was trying to impose sanctions on Chinese chip factories. Koreans believe that Intel sold it to South Korea after consulting with the US government, knowing that Intel's Dalian fab in China would be affected. It is some kind of insider trading or fraud.
Then passing the IRA and pressuring Samsung Electronics and SK Hynix to build semiconductor factories on US soil is not an allied attitude.
My understanding is that the semiconductor supply chain is hyper-globalized with many steps in the process being so enormously capital-intensive that only a single firm can produce them at scale, the firms producing these various steps are widely distributed geographically, and each step is nearly useless if any step is missing.
And I wouldn’t just be worried about something simple and direct like “the United States losing influence over Taiwan’s semiconductor industry.” The concern is more like “the United States losing its global influence and thus its ability to almost unilaterally enforce a particular global order including (among other things) relatively safe global ocean freight.”
As a matter of fact, he published a video today talking about this topic in some detail. You can find it on YT with the title "Semiconductors: China's the Odd Man Out".
Multinationals have no loyalty to any country anyway. Giving TSMC big tax breaks to build top fabs in the US to make AMD chips is equally as good as having Intel be a success from a national security perspective.
That's a wishfully pessimistic and cynical point of view. Multinationals are made of people and like people, some of them have more less turncoat attitudes. TSMC would probably not abandon Taiwan, it knows it's essential to its defense.
Nothing about my comment implies they’d have to. The US just wants supply chain security and availability. That can be done by TSMC factories in the US regardless of where else they have factories.
not really. the US cares a lot more about Taiwan if they are making the chips for the US. a sizable part of Taiwan's national defense strategy is to have a benevolent monopoly on cutting edge chip production so their allies think it's worth it to fight a war with China if necessary.
Yes, that is the current state. I was entertaining a future scenario above. TSMC is currently building more capacity outside of Taiwan, and the US is making investments that will likely continue this.
But they're not doing investments that will entirely replace Taiwan's relevance. The bulk of their top tier technology will remain in Taiwan, and I would be very surprised to see that change. Moving some production to the US to alleviate worst-case scenarios for Washington, yes, but moving enough that Taiwan's defense becomes irrelevant? I really don't think so.
I mean, if you were TSMC's CEO/Board, knowing full well that your country of birth is highly dependent on your presence for its defense posture, would you do allow this to change?
I had high hopes that Gelsinger would be able to pull it off. But seeing this makes me think that he's getting too much pushback from other factions within Intel and the institutional investors.
Unfortunately, what they delivered was also extremely underwhelming. I expected something that would at least be a mid-range GPU, but they ended up releasing trash tier casual gamer cards. I do not believe that was their intent. AMD and Nvidia are just too competitive today.
Given that AMD has been competing with Nvidia for so long and has had so much trouble gaining market share and that they are always competing on price rather than performance, I reckoned that Intel would suffer the same fate with ARC.
Intel are screwed. Many of its biggest customers have started just making their own chips instead. The bleeding edge of compute appears to be falling to Nvidia (who now make both the chips and the network that connects them). Their latest GPU project is going the way of their other GPU projects. They don't even have the biggest/baddest fab capability thing going on any more. I have no idea what's going on in there, but I can imagine, and it's not pretty.
Amazon. And I was assuming Microsoft but it turns out they are using ampere. Heh, Google too. I guess it's starting to work out for ampere (but Google make their own tensor chips).
> How is Intel an underdog next to AMD? I don't know many business machines running AMD.
I don't know what a "business machine" is, but you probably aren't intimately familiar with organizations that have been directly purchasing large amounts of processors or processor containing devices over the last several years. For many such entities, AMD has made way more sense than Intel.
Building a fab is very expensive. It's unlikely for some small new entrant to be successful, unless they happen to invent something better than EUV lithography or can somehow build all their machines from scratch.
Basically at this point, the big players are TSMC, Intel, and maybe Samsung. No one else can afford what it costs to be constantly upgrading their factories and doing the necessary basic research to get high quality and consistent yields.
I’m sure the key people won’t hurt as much, but hardware people are pretty screwed overall. Your mastery of some Intel process has not much value in the market.
I worked at a tenant in a well funded facility doing semiconductor manufacturing R&D and prototyping. The nicest cars on that lot belonged to the tradesmen running wire and pipe for the tools. A few execs drove fancy cars in their special lot.
This is the challenge with working in the semiconductor industry - you really are captive to <5 employers who have access to the billion dollar fabs and if they are all cutting staff then you have to take what you can get - unlike the SW/SAAS type companies where you just need an AWS account and a really good idea and good sales team.
Also it is highly likely TSMC pays much less than Intel's process/fab side of the house and works its process/fab teams a lot harder.
Dividends are silly in a world where you can achieve the same result and save everyone 20% tax by doing stock buybacks instead. It's also silly to strongly differentiate between dividend paying stocks and non dividend paying stocks as opposed to focusing on the business' cash flow, unless you're purposely avoiding dividend paying stocks because they suck from a tax perspective.
Yet, dividends are entrenched in many investor's psyche. Even official regulatory training in the US teaches registered representative that it's a good idea to recommend dividend bearing stocks to people who want "income" from their investments, which is a fallacy. Large mutual funds also have special categories for stocks providing high dividend yields.
Sad that this is the strategy as opposed to leveraging the incredible opportunity they have from their fabs.
Once upon a time dividend payments were _the reason_ to hold stock in companies. Funny that tax loop holes and the borrowing-against-assets-infinite-money-cheat rendered dividends "silly".
Yes this is a shit situation for Intel, but public companies should be paying dividends, IMO.
I have a feeling that increases in foreign investors also discouraged companies from issuing dividends. For example, I pay 0% capital gains tax but have to pay the US government (where I have never stepped foot) 30% on dividends.
Agreed. As a non-US tax resident, this factors a lot into whether a buy a stock or not. The 30% flat dividend tax rate pushes a lot of potentially enticing stocks to a bad buy for value.
I wonder whether this sentiment also contributed to the meme stocks popularity, since outside the US nobody really buys US stock with high dividends and are pushed to speculate on volatile stocks ala "stonks go up"..
In theory you can claim it back, but it's a major pain in the ass. Some ETF issued outside the US and holding US stocks will do it.
Other strategies to avoid this annoyance include:
1. selling on the ex-dividend date and buying the next day.
2. buying a long-date call and selling a put instead of holding the stock
3. simpler version of 2: buy a deep in the money long-dated call, you won't be paying all that much for the convexity, and you don't have to think about dividends.
I had to think about this for a bit, and then ended up Googling it. According to Investopedia [1] the key reasons buybacks are controversial are:
> Artificial financial results: The impact on earnings per share can give an artificial lift to the stock and mask financial problems revealed by a closer look at the company’s ratios.
> Abuse: Companies can use buybacks as a way to allow executives to take advantage of stock option programs while not diluting EPS. However, there isn't much evidence supporting the widespread belief that this happens.
> Price bumps: Buybacks can create a short-term bump in the stock price that some say allows insiders to profit while suckering other investors. This price increase may look good at first, but the positive effect is usually temporary, with equilibrium regaining when the market realizes that the company has done nothing to increase its actual value. Those who buy in after the bump can then lose money.
Basically there is a greater potential for price distortion and abuse with buybacks than dividends. Of course dividends can be gamed too, but as a relatively unsophisticated buy-and-hold investor I feel a lot more confident about buying a stock with a solid yield and long history of increasing dividends than I do about buying a stock with no yield whose valuation has shot up recently and is sitting near its record high.
1. There have been a studies that show companies are very good at doing buybacks near market highs rather than market lows so they are not efficient use of capital. Note that there have also been studies that try to claim stock buybacks do deliver long term value, but I have not found them convincing.
2. To build on the price bump point, the biggest beneficiary is actually short term activist investors and traders(who conveniently have similar time horizons as the executives) rather than long term shareholders.
3. Frequently buybacks are funded by draining reserves and/or with debt(especially when interest rates were low), this leaves companies weak when economic shocks happen like when the pandemic hit and we had to bail out the airlines who had no cash because they had been spending all their spare cash on buybacks. This could happen with dividends too but it is harder because it is an ongoing 'expense' you have to plan for because you pay it out every quarter rather than allow large sudden expenditures like you have with buybacks.
The reason to hold stock is that they return value to shareholders. Stock buy backs are functionally dividends but they are taxed more fairly. They also work better for foreign investors, and are a much cleaner and simpler mechanism than directly sending cash to shareholders.
>When bailed out banks paid bonuses it was understandably unpopular, but there was a certain logic that retaining talent optimized performance of the remaining bank, and therefore it was ultimately in the interest of taxpayers.
I don't think optimizing the performance of banks the create trillions of debt and were bailed out trillions of dollars is "in the interest of taxpayers".
The US government bailed out banks by effectively purchasing large portions of their assets and tasking the banks with continuing to administer these troubled assets. In the end it worked in that the US eventually was able to sell those assets back at an accounting (though not economic) profit.
At a bank, 90% of the people do not have any distinctive talent - the companies just hire Type-A looking people, even regardless of college major. This is in many ways why they work so hard and subject themselves to such indignities -- fundamentally they know it and they know they could be replaced at the drop of a hat.
But it destroys loyalty, and they will leave at the first opportunity, which will happen sooner or later. It does not sound good as a longer-term strategy.
Every employer of note across tech is behaving in pretty much the same manner right now. There's no point holding a grudge over this if the alternative is working at... Anywhere else, that treated its people just as poorly this year.
The more plausible risk is people mentally checking out, and not giving much of a crap about their work.
I don't know if this report is real but nobody with significant experience dealing with Intel would be surprised if they do choose this particular footgun configuration.
If Intel becomes a pure play foundry, bear with me, then it won't need those employees. It should be training those employees to become silicon designers and verification engineers at their own fabless semiconductors.
Or Intel has found cover from other tech shops to 'do the necessary' and prune the dead wood. It's about time the C level began to look at employee performance and contribution to profits or losses.
Good point; maybe this is the least effort way for C level to do something without doing hard work. We will see over next couple years how attrition works out.
Employee performance is nothing without good leadership and sound strategy. Intel seems to be lacking both, and it’s not the fault of most of the employees getting pay cuts.
I think it’s cool watching giant companies fumble over and over strategically but see comments applauding cutting workers. Why would you trust their wisdom on this decision? So weird how this country admires the most dogshit performing executives
The article doesn't actually substantiate the claim that the cuts are being made to maintain the dividend. The article does claim, through unnamed sources, that the pay cuts are real.
But if history is any guide, the dividend cuts are also coming.
The current yield is over 5%, which is higher than any duration of US Treasury. This should be a pretty low bar, but over the last 30 years isn't. When company dividend yields approach this threshold, something often gives.
It's also worth noting that as late as a few weeks ago there were several articles swearing up and down that there's no way Intel will cut its dividend. That's looking more ridiculous by the day.
On the other extreme, you don't want to do completely commodity work, or you'll be stuck competing on who can move the subscribe button for a smaller bowl of ramen.
The sweet spot is somewhere in between, where you have non-trivial skills others don't, and multiple companies willing to pay for them. In essence, supply and demand, like always.
The vast majority of engineers at Intel are not what you described. Most are CS/EE bachelors or masters that could go to dozens of other companies shipping hardware.
Former Intel employee here. This may be true for their design folks, but the largest portion of the company is related to the fab, and there aren't many jobs for those folks. Moreover, the alternatives (TSMC, Samsung, etc) suck as much as Intel.
I'm seeing plenty of intel folks move easily into other areas. I don't think this is true. We hired a test automation engineer who worked on the fab side at my last employer. They transitioned pretty well until a PCBA and server integration testing role.
If he was a test automation engineer, he likely had transferable skills. Many/most of the fab folks have almost no programming skills, and are PhDs in things like chemistry[1], etc.
Now some of them do take the initiative and learn SW skills, or data analysis properly, and switch due to that. But the majority of them feel stuck. They have a heavy workload and do not feel they have time to learn new skills.
[1] For a long time, and perhaps even now, the fabs only hired either technicians or PhDs. An exemption would be needed to hire someone with "just" an MS. Of course, almost none of these jobs actually need PhD level skills.
Moreover, those alternatives are generally located in Asia, not the US, so that's probably not a likely job change for most. Maybe they could move to one of the new Samsung/TSMC fabs being built in the US though.
I too am ex-Intel. The majority of employment opportunities are in the fab but that’s mostly manufacturing and technicians. It’s not mostly PhDs with no breadth knowledge which is what the original comment was seeming to imply.
Not denying that, but you previously claimed that “the largest portion of the company is related to the fab.” If you’re saying PTD PhDs are this “largest portion of the company” in terms of engineers, that makes no sense. Intel isn’t hiring more PhDs than Masters/Bachelor – there aren’t enough PhDs out there for that to ever happen.
The majority of Intel employees are directly related to the fab, but those employees are not mostly PhDs without many other job prospects.
Sure it is, relatively. Software is used in all kinds of industries, not just ad-tech. There's no shortage of jobs in software, though the super-high-paying FAANG jobs are diminishing.
If you work in chip design for Intel, this just isn't the case; there's only a few places you can go.
I'm not an Intel shareholder (outside of ETFs maybe) but I would be far more interested in their stock if they cut their dividend entirely and invested 100% of earnings back into the business. Hire the best talent, become the kind of place where the best talent wants to be. Stop being a stodgy, old, risk averse has-been. I would really like to see Intel make a comeback but this dividend preservation move suggests they no longer believe in their own company.
Xe-HPC wasn't a risk-averse design, nor was Arc, nor was Alder Lake, nor was Sapphire Rapids. The only problem is that Xe-HPC is nowhere to be found, Arc was delivered 2 years late and buggy, and Sapphire Rapids was at least 1 year late; only Alder Lake delivered on time and without major problems. Thus, the problems came from poor execution.
Look at Intel's projected node schedule, it's very aggressive. Show me the risk aversion there. The problem is that it's difficult to achieve that schedule without problems, and taking into account Intel's history, the market doesn't believe they can do it.
It needs to die inside first. There’s been hope with Pat but the results are here and it’s just more of the same. The purge is needed and looks like it’s finally coming, at least 5 years too late, but look at where AMD has been before. It’s a high risk high reward mun or bust play.
If I were an Intel employee I would never accept a pay cut "justified" by the company's willingness to pay dividends. Investors get dividends when the management creates a reasonable amount of profits, not when employees have to waive their dues to do investors a favor.
It's a textbook example of how owners of capital can extract economic rent from wage workers they hire to utilize that capital to produce something valuable. The whole point of any for-profit business that is not worker-owned is to "do investors a favor" with the money obtained by paying workers less than market value of the goods they produce.
No. Employees are neither VCs, nor credit institutions, nor social benefactors, nor non-profit, nor pro-bono volunteers. They work for a wage – And, yes, first hired that joined the ranks of executives with a vetted interest in the company (e.g. stock options) are already something other. Paying the wage is an obligation, if the employers want the work to be provided. Risks – and the associated rewards - are primarily with the investors. A work culture that shifts the risks onto workers has to be rethought.
> paying workers less than market value of the goods they produce
Have you ever owned a business? If employees got paid the value they produce, why would any business bother to exist?
If you want to get paid the value you produce: start a co-op; join a co-op; start contracting; or become a founder. Stop whinging, and do something about it. So many employees choose to work for a business - it is a transaction where they get paid and the business makes money, and both are usually better off for it.
I too dislike seeing employees get taken advantage of, but “fixing” capitalism is not trivial.
Note that I didn't make any moral judgment on the matter, or any specific suggestions on how to fix it. I merely pointed out what the arrangement is explicitly - yet all the replies are, essentially, saying "this is fine" (or, at least, "this is the best that we can do"). Fair enough, but let's at least be explicit about what's on the table, and let's not pretend that the resulting distribution of produced wealth is not a consequence of a pre-existing and self-perpetrating economic power imbalance.
Co-op employees seem to be doing better off on average, so I would argue that "usually better off for it" is not really true. Better off than trying to run their own business - yeah, probably true for most; regardless of who gets the profits, businesses still need professional managers to run them effectively.
I answered why I think your original statement is nonsensical, yet this new reply goes off on other tangents. Plus you appear somewhat hypocritical to me: you are complaining about the fruits of capitalism, but yet you chose to move from the USSR to the USA and work at Microsoft!! You also appear to write a lot on politics, which is definitely something Hacker News discourages on the site (and here I am engaging with you, sorry). Edit: I am just saying that idealistic political clichés are usually meaningless. Capitalist businesses and the consequences are a compromise, and I agree it would be nice if we could make better compromises, and it is worthwhile trying to. My personal definition of engineering is: compromises with reality.
I moved from Russia to the US; capitalism is certainly better in the latter than the former. Besides that, there's also the question of social and political freedoms, which is largely orthogonal to economic systems; you can and we do have brutal capitalist dictatorships, and there are democratic socialist polities (e.g. Rojava). I'm also no fan of USSR and authoritarian socialism in general, but the choices aren't limited to that vs capitalism.
In any case, to reiterate, the point is that for it to be a compromise, we should all be aware of the nature of that compromise - that is, who is giving up what exactly, and for whose sake. It is only a true compromise if people knowingly choose to preserve it, because they feel that it's the best deal that they can get.
> If I were an Intel employee I would never accept a pay cut "justified" by the company's willingness to pay dividends.
Maybe they intentionally want to cause some attrition with this move without announcing additional layoffs? It is kinda win-win for them since they both save money on payroll and don't do explicit layoff with pay severances, risk of lawsuits, etc.
Obviously such approach can cause "dead sea effect", but they either don't care or assume it won't happen.
Yes, this is a tactic some companies resort to in order to incentive resignations. However, as you correctly highlight, this typically results in a loss of talents. AFAIK, Intel is already experiencing challenging times. Attracting – and retaining – new talents is especially hard to do, when the job marketplace learns about this peculiar work culture that prioritises paying dividents to talent retention. I would be very happy to be proven mistaken, for the sake of friends working at Intel.
As an investor, I would have been fine with cutting the dividend if it meant saving the compensation of employees.
Intel has a lot going for it still, but this is a sure fire way to hurt morale and create an exodus of good talent and future leadership, especially when your key rivals are hiring.
Agreed. This is a very capital intensive business. They should be investing that capital into upgrading their technology. The dividend should be off the table for the next few years, at least. Paying a dividend probably made sense in the 90s and even into the early 2000s when Intel pretty much owned the whole PC CPU market. But now they're in a tough spot and the only way out is to invest that money that they're throwing out there as dividends.
Intel lost this battle years ago when leadership decided to badge engineer the shit out of their product portfolio and do stock buy-backs. In a capital intensive enterprise, Jack Welch school of management will only give the company maybe 10 years before those opportunity costs blow signifgant holes in your boat. Look at TSMC, they take government money, invested that in people and material. They’ve got a work plan in place to meet their customers needs which in turn is driving market direction. GF was left for dead and look at what they’re doing. They’re eating Intel’s lunch now while they’re flailing with mediocre graphic cards and no clear strategy where they’re going with future x86 designs. The universe is moving towards RISC and they’re essentially locked in a prison of their own making.
Of all the things you picked the least relevant one. Intel without GPUs is dead. Gone. Zero. A foundry at best, with a decade to be top tier again. Intel without RISC is… fine? The instruction set doesn’t matter, the underlying hardware doesn’t execute it anyway, it runs microcode.
> “These changes are designed to impact our executive population more significantly and will help support the investments and overall workforce needed to accelerate our transformation and achieve our long-term strategy.”
Calling bullshit on that.
A 25% pay cut when you're pulling in close to 200 million (ignoring the fact that the pay cut is likely to only apply to a portion of that which makes things even worse) is NOT a more significant real world impact than even the minimum 5% pay cut non-executive employees are getting and who do they think they are fooling by saying it is?
Even weirder that last year Intel trebled the stock bonus, added a high performer profit bonus adder, and increased base pay by a lot. What a strange about face. What is Pat doing?
Sure, and that's been the problem with the last couple of CEOs before Pat, but Pat came in expressly saying he was going to take the long view. I suspect that he's visited been by some large institutional investors who don't take the long view.
Pat did something similar at vmware. Froze hiring, promotion, raises, 401k matching, etc, etc. for a year, got himself an 80% pay raise for how well the company did, unfroze all that and fled to Intel. (The kicker is that vmware didn't compensate for the lost money and matching in the next evaluation cycle.)
I'm shocked that it has taken him this long to nickle-and-dime Intel's remaining employees to keep his pockets lined.
Pat is ultimately just a high-paid employee. The board and investors own the company and have ultimate veto on what Pat does or he's fired. If Pat puts in a plan at the quarterly meeting to cut dividend, they can tell him no and to instead cut salaries.
Intel is projecting a loss next quarter, something that hasn't happened in a really long time. Pat doesn't want it to happen on his watch, but I think it would have been better to cut the dividend or take the loss than to do pay/bonus/benefit cuts like this.
Wouldn't be surprised if the words "organize" and "union" are spoken in hushed tones by a few people in the hallways tomorrow. If that gets any momentum behind it it would be a glorious thing and long overdue, but it might not help with Intel's financial difficulties or inspire shareholder confidence...
Good point: it was a loss according to GAAP, but the non-GAAP results weren't a loss. Whereas it looks like they're projecting a non-GAAP loss as well next quarter.
(I don't know what the relevant differences are here on GAAP vs non-GAAP.)
Yeah, non-GAAP is basically, "we've decided to account for certain things differently because the standard accounting rules would be misleading in our business." Companies could abuse non-GAAP reporting, but there's nothing particularly unusual or nefarious about reporting non-GAAP numbers along with the required GAAP numbers, or treating the former as the more accurate representation of reality.
If you're one of the best employees at Intel, who are you going to go work for? Choices are limited, and it's quite likely that those others are going to do roughly the same thing.
There are so many choices if you're a top talent in silicon. Apple, Amazon, AMD, Nvidia, Qualcomm, Broadcom, one of many AI accelerator startups, Tencent, Alibaba, Baidu, Microsoft, Meta, Google, ARM, TSMC, Micron, Samsung. Just off the top of my head.
Everyone is making custom CPUs or accelerators, or both nowadays. This isn't 2005.
Probably none. It's illegal in the US and after what happened between Apple and Google's anti-poaching agreement, I think Silicon Valley has stopped. I haven't heard about any in a long time.
Wouldn't the previous employer in the previous state still be able to sue you in their state (as your old employment contract specifies that any disputes will be resolved in the courts of that previous state)?
I think they still have offices here in the US and employ Americans. Alibaba has been scaling back though. Lastly, I don't think there's any law that prevents an American from moving to China to work.
> Lastly, I don't think there's any law that prevents an American from moving to China to work.
IANAL but yes there are now
> Restricts the ability of U.S. persons to support the development, or production, of ICs at certain PRC-located semiconductor fabrication “facilities” without a license;
Only if they don’t want to keep their visas/green cards. “us persons” can have different meaning but I’m pretty sure in this case it applies at least to gc
Apple is now year 2 of throwing down the M1/M2 and the shock waves it created. AMD and Intel have to respond with an ARM chip. They just have to. Apple started it, so Qualcomm is going to do it, why wouldn't Samsung do it?
Intel has to play talent defense here. At a minimum, these companies are going to need deep x86 people that know how to do fast dynamic compiling transcoding like Apple did. Where can you get those? How about disgruntled Intel workers that got their pay cut?
Intel must have known about apple silicon potential since 2015. It literally took two straight lines with time on x and performance on y to know it will happen if Intel doesn’t improve execution. It didn’t.
> Intel’s leadership has decided that the dividend is more important than employee retention
That's what happens when you're a publicly traded company? Your primary role once you're listed is to make your stockholders money, and if you don't, your stockholders will vote to replace the people at the top refusing to focus on dividends. You can have all the morals and ethics and good intentions and those amount to a sum total of zero after IPO, because unless you bought enough of your own stock to retain majority control, you no longer own the ship, you only get to set the course and steer it, and if you don't do a good enough job at that, the ship owners will have you replaced.
Back in the day at 3Com, Bill Krause used to announce that everyone had to take two days of vacation in the coming quarter. The reason was that he had "promised" Wall Street that we would hit a certain earnings number, and with accounting practices, your accrued PTO is "paid back" when you actually take it.
(The rationale is, they'd have to hire someone to do your job when you're gone, although of course that's nonsense for engineers.)
No one on Wall Street was fooled by crap like this, and I doubt Intel's moves will make any difference, either.
Honeywell furloughed virtually its entire staff for two weeks in Q2 of 2020. Literally, no work and no pay, just all about reducing labour expenses by 2/13ths for the quarter.
The worse culture, I have ever seen in any company. Amazed how they are still in business. The corporate greed, the culture of nepotism, killing innovation has been dominant.
I think you're being hyperbolic, or you haven't worked in many companies. Intel isn't a great place to work (despite their corporate value claiming it is), but by most accounts, Amazon is much worse unless you really like a place with cutthroat corporate politics. And "corporate greed"? Doesn't that describe every American corporation? All the big tech companies are laying off right now (except maybe Apple). And nepotism? I'm not sure where you got that one from. Intel isn't a family business.
Intel sucks in a lot of ways, but you seemed to list a bunch of inapplicable things. Intel's yearly review process is horrible, something Jack Welch would be proud of, pitting employees against each other, and their pay is terrible for a tech company.
> Intel isn't a great place to work (despite their corporate value claiming it is), but by most accounts, Amazon is much worse unless you really like a place with cutthroat corporate politics.
I used to work at Intel. Some data points:
When the news about how bad Amazon's culture was (e.g. people crying at desk), my thoughts were "This sounds like Intel."
When you talk to Amazon employees, most say "Every team is different. We don't see such behavior in my team, and I don't work long hours (i.e. more than 40)." And the same can be said at Intel. If you're close to the fab, the behavior is crap. Software tends to be pretty chill. And you'll see everything in between. I recall once going in on Saturday and talking to a guy - he said he'd worked every weekend for the last 6 weeks and expects to continue doing so for a month or two more.
Everyone I know who has left Intel to join Amazon is happier at Amazon. Everyone. The most common refrains:
1. Good work/life balance at Amazon (although some had it good at Intel too).
2. Far fewer morons at Amazon. When you're in the non-core parts of Intel (e.g. software), the people around you are fairly poor in terms of talent (e.g. complaining about having to use Git, saying we're using it only because Microsoft owns Git (!), refusing to use branches in Git and insisting on just creating command line arguments for every experiment you want to try).
I feel like 90% of Intel's problem this last decade is not really understandding SW/tooling. It's what fated Itanium/Larrabee not to mention their whole SSD effort.
"All employees below Principal Engineer, grades 7 to 11, will get a 5% cut, 10% cuts will be instituted for VPs, and the executive leadership team will take a 15% cut, with Pat Gelsinger taking a 25% cut. "
So the OP would rather have Intel fire thousands of employees?
It's not 2021 any more. Intel revenue dropped significantly in 2022, meanwhile they were hiring as though the revenue growth would continue. It's a similar story to many other tech companies. But at least at Intel, leadership is taking responsibility by cutting their own pay more than their employees' pay.
They still made 8 billion in profit in 2022. There's ~130k employees, let's be generous and say average income for all of those is $120k a year. This is generous because there's a massive amount of factory workers that get paid nowhere near this. That's $15 billion a year in salaries. Cutting that by 10% is $1.5 billion. Intel still would have had several billions in profit.
As I said - no reason except greed. The business is not in jeopardy.
> leadership is taking responsibility by cutting their own pay
This is a really empty gesture. Leadership has leverage to get that pay bumped up again very quickly, and I guarantee they will. They may even get bonuses to offset it in the future.
Non-leadership employees have extremely little to no leverage to get their pay back up. And in terms of financial stress, a leader making $300k a year taking a 15% cut isn't going to feel much different. Someone making $60k a year on the fab floor is going to have to make lifestyle changes with a pay cut.
They already are laying people off. The reason why they're instituting the cuts is because they can't bleed critical talent, so instead they're betting on said talent staying even after a pay cut.
Intel already has low wages relative to the US software industry and since the work requires a high level of general capability, and often a PhD, for Intel to get top people to build competitive processors should require substantially higher wages than are common in the US software industry and other industries which someone who could easily get a chemistry/solid-state physics/etc. PhD could easily choose instead.
"This was an incredibly dumb move, as employees will become “quiet quitters” and lose morale."
Suppose you need to cut employment costs. Is this always better than firing staff?
- For employees: you share the burden instead of some facing hard options (firing) so if you are a team player, this is the choice for you. Those who have options in the market, can still leave for greener pastures; if this was the deciding factor, perhaps they were not too committed on the job anyway? If your unit was on the brink of being profitable (such as being few percent on the negative)), it was just brought to the profitable side, and it might be that now the entire unit can keep their jobs.
- For the company: you still have the option for downsizing, and you just bought time to plan it more thoroughly.
MBAs and bean counters ran this company into the ground in the first place. I’m sure the chain of decisions makes perfect sense given circumstances, but there was no vision to actually do anything seriously other than keep printing money. Lo and behold risk happens slowly then all at once.
I’m sure that’s the MBA type rationalizing going on Intel.
Without the second part where the dividends have not been cut and the company would otherwise be making sound business decision it would also be understandable.
Ugh, I feel bad for all my former coworkers. Pat was supposed to be the returning savior of Intel and now I'm hearing rumors he might not last through 2024 at this rate. The thing is, even if Pat goes down, Intel is too big to fail for the US from a national security POV. While TSMC is starting to build more fabs in the US, they're doing it kicking and screaming, and the funding in the Chips & Science Act is just a drop in the bucket for now. I fully expect more semiconductor industrial policy from the US gov in the next 10 years. It's a good time to be in semiconductor policy at Intel, SIA, etc. etc.
I’m both thinking out loud, and not trying to justify the decision here.
Given that a large part of tech employee compensation is through stock, what’s the break even point between further lowering the stock price and directly lowering compensation?
Once you let accountants make decisions any company eventually gets to this point. Accountants are wonderful human beings who know the price of everything and the value of nothing. Source: I’m married to one.
I don't think so, unless it was long enough ago to be outside my window of experience.
Intel went through a major round of layoffs in 2016. (This was called ACT.) I don't know of any pay cuts, just salaries that weren't particularly high to begin with and haven't risen very fast.
This time they're apparently trying to avoid large-scale layoffs. Cutting salary/benefits isn't great either though. If they want to reduce payroll expenses, they could take volunteers for people to switch to a 32 hour a week schedule in exchange for reduced pay (which wouldn't even be a new policy, it just isn't very well known).
Hold on to your wallets, Intel employees! The company just announced pay cuts to boost their quarterly dividend, leaving employees to bear the brunt of the impact. But don't worry, the real prize is the company culture that's toxic enough to kill creativity and innovation. Who needs those pesky innovative ideas anyway? #IntelNotSoInteligent #TimeForBetter"
The dividend has become more political than normal. In finance theory, a dividend is supposed to be a paid-out return. If you're cutting salaries to pay the dividend that means that you don't have enough surplus...by definition.
Intel's sales aren't going to get any better anytime soon, so the cut is coming eventually. They're starting a death spiral, one that'll be hard to escape.