Shares of Intel (NASDAQ: INTC) moved Friday after news reports emerged that the company was considering spinning off its manufacturing arm from its core chip design business in a bid to rehabilitate itself and create value for shareholders.
The news followed a disastrous earnings report earlier this month, which included weak results, disappointing guidance, the elimination of the dividend and a restructuring plan that will lay off at least 15% of the workforce.
Investors looking for signs of change at Intel welcomed the news, with shares up 7.6% as of 1:10 p.m. ET.
Is it time to break up Intel?
According to Bloomberg, Intel is discussing strategic options with investment bankers. Possible options include splitting its two main business segments or scrapping some planned factory expansions that were a cornerstone of CEO Pat Gelsinger’s transformation strategy.
Intel’s board is expected to consider a number of options in September.
It should come as no surprise that Intel is considering such major changes. The company is clearly in dire straits, and its stock price is hovering near 20-year lows.
Is the news positive for Intel stock?
At this point, Friday’s gains look more like a dead-cat bounce for the stock than anything fundamentally meaningful. Separating the manufacturing operations from the rest of the company could be a win for investors, as the foundry business has been a drag on overall results, but it would also undermine Gelsinger’s long-term strategy. Such a change might even require a new CEO.
While the issue is worth keeping an eye on and investors should pay attention to news emerging at next month’s board meeting, Friday’s surge seems more like a sign of investor desperation than a real reason to buy the stock.
We can expect Intel stock volatility to continue as the restructuring is far from complete.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Intel Stock Surges. Can a Split Plan Save the Company? was originally published by The Motley Fool
