Intel Corp is facing a class action lawsuit filed by shareholders in a San Francisco federal court, alleging that the company misled investors about the health of its in-house chip manufacturing business. The lawsuit, initiated by the Construction Laborers Pension Trust of Greater St. Louis, accuses Intel chief executive officer Patrick Gelsinger and chief financial officer David Zinsner of concealing critical issues that resulted in disappointing financial performance, significant job cuts, and a drastic drop in stock value.
The lawsuit centers around Intel’s in-house foundry business, which manufactures chips for external clients. Shareholders allege that Intel’s in-house chip manufacturing model, which was touted as a cost-saving strategy, instead led to unexpected financial burdens. The lawsuit claims that Intel misled investors by presenting a falsely optimistic view of its foundry business, which has faced escalating costs and declining revenue. According to the lawsuit, statements made by Intel’s executives, including a January 2024 press release from Zinsner, were materially false and misleading, artificially inflating the company’s stock price.
These undisclosed issues, according to the lawsuit, came to light on August 1 when Intel reported a dismal second quarter. The company revealed a net loss of $1.61 billion, a 1% revenue decline to $12.83 billion, and announced a shocking 15% workforce reduction (impacting over 15,000 jobs) alongside a suspension of its dividend payout. These announcements sent Intel’s share price plummeting by 26% to $21.48 the following day, with further declines since. The stock was trading around $19.8 on Friday.
Intel’s challenges are further exacerbated by stiff competition from rivals such as Advanced Micro Devices (AMD), Nvidia, Samsung Electronics, and Taiwan’s TSMC, particularly in the rapidly growing artificial intelligence sector. The company’s inability to keep pace with these competitors has added to its financial woes.
While Intel has not yet commented on the lawsuit, it remains to be seen how the company will respond to these allegations. This legal battle adds another layer of pressure to Intel as it navigates a period of financial hardship and intense competition.
Elsewhere, due to the concerns around Intel’s profitability over the next 12 to 18 months, credit rating agency Moody’s on Thursday downgraded the company’s senior unsecured rating to BAA1 from its earlier A3 rating. It has also changed its outlook on unsecured ratings to negative from stable.
