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Here’s what Intel’s layoffs mean for INTC stock


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What does a dip process look like in a stock? In the case of the microprocessor manufacturing giant Intel (NASDAQ:INTC), hitting rock bottom inevitably involves layoffs and a general feeling of pessimism. The layoffs are not going to be pleasant, but they are a sign that Intel management is doing what is necessary to turn the company around and restore confidence in INTC stock investors.

After a euphoric 2021, investors will remember 2022 as the year of the sinking of Big Tech. Semiconductor stocks were particularly hard hit. And Intel remains stuck in the niche even as a new year approaches.

So, it seems the news of Intel’s layoffs is a signal of the company’s impending doom. In reality, however, it’s a sign that Intel management is ready to exercise fiscal discipline – and contrarian investors should be in the mood to buy, not sell.

INTC stock is despised… but not by everyone

Again, we need to keep in mind what a substantive process actually looks like. Think of the stock market in March 2009 as an example. The bulls were laughed at then, but they were 100% right.

Similarly, you won’t make many friends if you go to a financial bulletin board and proclaim your optimism for INTC stocks. It certainly didn’t help the bull camp when JPMorgan analysts joined the chorus of pessimistic voices on Wall Street earlier this month.

In case you didn’t get the memo, JPMorgan analysts issued a dreaded double downgrade. They downgraded Intel shares from “overweight” to “underweight” and halved their price target on the stock from $64 to $32.

At a time, Avant-garde, black rock (NYSE:noir), State Street (NYSE:STT) and other large-scale investors reportedly held long positions in INTC shares. It’s also worth noting that CEO Pat Gelsinger and board member Lip-Bu Tan are both major Intel shareholders.

Intel layoffs are part of a long-term plan

Are Intel layoffs bad news? For displaced workers, the answer is probably yes. For Intel shareholders, however, the downsizing is a sensible and necessary move.

The company announced impending layoffs in October as part of Intel’s third-quarter earnings report. This isn’t just a haphazard cost-cutting tactic. Rather, it’s part of a larger plan to create $3 billion in cost reductions next year.

Do not mistake yourself; Intel currently has more than 121,000 employees, so it will remain a chipmaking powerhouse even after the layoffs. For November, Intel management reiterated its intention to proceed with “targeted” layoffs. There is therefore no doubt that some jobs will be lost.

This is part of the painful process of cutting back billions of dollars. Remember that improving Intel’s bottom line isn’t just about generating more revenue. It is also about reducing costs, including those related to human capital.

What you can do now

In the final analysis, the word “layoffs” should not scare sane investors away from INTC stocks. On the contrary, it is a sign that Intel executives understand the importance of financial discipline.

So don’t worry too much if some people on Wall Street hate Intel now. There are also confident big-budget buyers – and you can join them, if you want, with a long-term position in Intel.

As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

David Moadel has delivered compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga and (of course) InvestorPlace.com. He is also the Chief Analyst and Market Researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.

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