In what is a testament to how far Intel, the erstwhile giant of the semiconductor sphere, seems to have fallen lately, Fitch has now downgraded team blue's credit standing to just two notches above junk status, which echoes similar steps taken by Moody's and S&P Global back in 2024.
To wit, Fitch has now slashed Intel's credit rating for its long-term debt from BBB+ to BBB, while pegging a negative outlook on this rating, which suggests that further downgrades remain a possibility. Do note that BBB status is the last rung of what Fitch describes as an "investment grade" rating.
On the other hand, the credit rating agency has re-affirmed its F2 rating for Intel's short-term debt, which indicates a good intrinsic capacity for timely payment.
Fitch goes on to note in its dedicated rating action commentary:
"Credit metrics remain weak and will require both stronger end markets and successful product ramps, along with net debt reduction over the next 12-24 months, to return EBITDA leverage to levels consistent with the ratings."
Fitch has identified a few critical stimuli - both positive and negative - behind today's credit re-rating for Intel:
- Delayed de-leveraging, with EBITDA leverage standing at 5.0x while exiting 2024, but expected to decline to 4.0x in 2025, and 2.5x by 2027.
- Improving manufacturing yields and customer uptake of Intel's 18A process over the next 18 months will determine the company's ability "to stabilize market share, meaningfully expand profit margins, and potentially attract external foundry customers."
- As a result of aggressive cost-cutting measures, including successive waves of headcount reduction, Intel now expects to lower its operating expenses to $17 billion in 2025 and $16 billion in 2026 vs. $19.4 billion in 2024.
- Concurrent with "flat" R&D expenses, Intel's EBITDA margin will rise above 30 percent in 2026 vs. just around 20 percent in 2024.
- "The sale of common stock in Mobileye, Intel's semi-autonomous automotive chip business, and a majority stake of Intel's programmable solutions business, Altera, should generate roughly $5.3 billion of cash proceeds over time. This, combined with $1.9 billion received in 1Q25 from the memory business sale, will more than offset restructuring-related cash outlays."
- Trade-related headwinds have prompted Intel to broadcast a much more muted guidance for 2H 2025, especially as the first half of the year drew benefit from demand pull-ins.
- Intel can improve its capital intensity metric by reducing CapEx on its next-gen 14A process, but at the risk of further damaging long-term revenue growth prospects.
- Intel faces increased competition in PCs from Qualcomm Inc. and AMD.
- "In the nearer term, Intel's product lineup will limit its ability to benefit from robust artificial intelligence (AI) growth."
For the benefit of those who might not be aware, Intel’s turnaround strategy under CEO Lip-Bu Tan focuses on regaining market share through accelerated process technology advancement. Critically, however, Intel plans to switch to its next-gen 14A node only if it is able to secure confirmed commitments from customers. Concurrently, Tan is also trying to rejuvenate Intel's x86 ecosystem via Panther Lake (current-gen) and Nova Lake (next-gen) CPUs, as well as Granite Rapids GPUs, with support for Simultaneous Multi-Threading (SMT) in the offing.
To reduce overheads, Intel is slashing its workforce by 15 percent from its previous strength of 99,500 (as of the end of 2024). Bear in mind that the company culled 15,000 jobs in 2023, and a further 15,000 in 2024. Intel is also closing its plants in Germany and Poland.
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