Intel Corporation, the Silicon Valley giant known for its semiconductor innovations, is embroiled in legal trouble following a sharp decline in its market value.
On Wednesday, the company was sued by a group of shareholders who accused Intel of fraudulently concealing significant issues that led to disappointing financial results, massive job cuts, and the suspension of its dividend.
The lawsuit was filed in the U.S. District Court for the Northern District of California.
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The shareholders allege that Intel, along with CEO Patrick Gelsinger and CFO David Zinsner, made materially false or misleading statements about the company’s foundry business—a segment where Intel manufactures chips on contract for other companies.
According to the lawsuit, Intel’s leadership falsely inflated the company’s stock price by concealing the true state of its foundry operations, which were reportedly “floundering” and costing the company billions of dollars more than anticipated, even as revenues declined.
The legal filing claims that Intel’s misrepresentations persisted from January 25, 2024, until August 1, 2024. Shareholders were “blindsided” when the company disclosed on August 1 that its foundry business was underperforming, resulting in significant financial strain.
This revelation, coupled with Intel’s announcement of a $1.61 billion net loss for the second quarter and a 1% drop in revenue to $12.83 billion, triggered a dramatic 26% drop in the company’s share price, which plummeted to $21.48 on August 2.
Intel’s Financial and Operational Struggles
In the wake of these revelations, Intel’s stock has continued to suffer, with shares closing at $18.99 on Wednesday, representing a 34.6% decline since the August 1 announcement. The company’s market value has reportedly decreased by more than $32 billion in just one day, highlighting the severe impact of the financial disclosures.
Intel also announced a series of drastic measures aimed at restructuring the company and addressing its financial woes. These measures include laying off more than 15% of its workforce, amounting to over 15,000 jobs, and suspending its dividend starting in the fourth quarter of 2024. These cost-cutting efforts are part of a broader plan to save $10 billion by 2025.
The lawsuit comes at a time when Intel is facing intense competition from rival chipmakers such as Advanced Micro Devices (AMD), Nvidia, Samsung Electronics, and Taiwan Semiconductor Manufacturing Company (TSMC). These companies have been capitalizing on the growing demand for artificial intelligence (AI) technologies, a sector in which Intel has struggled to establish a strong foothold.
The case, titled Construction Laborers Pension Trust of Greater St. Louis v Intel Corp, reflects growing investor frustration with Intel’s performance and transparency. The lawsuit is seeking class-action status, which could potentially involve a large number of shareholders who suffered financial losses due to the company’s alleged misrepresentations.
As Intel faces this legal challenge, the company is also under pressure to turn around its struggling operations and regain investor confidence. Intel has not yet commented on the lawsuit, but the case is likely going to draw significant attention as it progresses through the courts, bearing further impact on the company’s shares.