Shares of Intel (NASDAQ: INTC) were on the move Friday in the wake of news reports that the company was considering the possibility of spinning off its manufacturing arm from its core chip design operation in order to rehabilitate itself and create value for shareholders.
That news came after a disastrous earnings report earlier this month that included weak results, disappointing guidance, the elimination of the stock’s dividend, and a restructuring plan that will cut at least 15% of its workforce.
Investors, who have been eager for any signs of change at Intel, cheered the news, sending the stock up by 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 — options that could include splitting its two primary business segments or ditching some of the planned factory expansions that have been the cornerstone of CEO Pat Gelsinger’s transformation strategy.
Intel’s board is expected to review a range of options in September.
It shouldn’t come as a big surprise that Intel is considering such major changes, as it’s clearly flailing, and the stock is hovering around 20-year lows.
Is Intel stock a buy on the news?
At this point, Friday’s gains look more like a dead cat bounce for the stock than anything fundamentally meaningful. Cleaving the manufacturing business from the rest of the company could be a win for investors as the foundry operations have been a drag on its overall results, but doing so would also undermine Gelsinger’s long-term strategy. Such a change might even call for a new CEO.
While the issue is worth watching, and investors should pay attention to any news coming out of next month’s board meeting, Friday’s jump seems like more of a sign of desperation from investors than a real reason to buy the stock.
Expect the volatility in Intel shares to continue as its restructuring still has a long way to go.
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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 Is Soaring. Can a Breakup Plan Save the Company? was originally published by The Motley Fool
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