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Fitch has downgraded Intel’s credit rating by one notch while assigning a negative outlook on the chipmaker. It joins credit rating peers S&P Global and Moody’s, which have previously downgraded the Santa Clara, California-headquartered company’s credit rating
Fitch downgraded Intel’s Long-Term Issuer Default Rating (IDR) and senior unsecured ratings to BBB from BBB-plus, which is just two notches above junk credit status.
Fitch Lowers Intel’s Credit Rating
“The ratings and Outlook reflect a more challenging demand environment than previously anticipated, which is constraining profitability growth,” said Fitch in its note.
It added, “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.”
Other Credit Rating Also Lowered Intel’s Ratings
To be sure, Fitch’s downgrade of Intel’s ratings is not an isolated case, and in December, S&P Global also downgraded its rating to BBB while maintaining a stable outlook. It said that Intel “faces a slow industry recovery and higher-than-expected new product start-up costs and manufacturing costs that are likely to last through 2025.”
S&P Global also weighed in on the management changes, and the rating cut came after the company’s then-CEO, Pat Gelsinger, abruptly resigned. In August 2024, Moody’s Ratings downgraded Intel’s senior unsecured rating to Baa1 from A3 and assigned a negative outlook, after the company posted a massive loss in Q2 2024 and suspended its dividend amid the worsening financial position.
Intel’s Rivals Have Raced Ahead
Intel, a long-time dominant force in the PC and server markets, is facing unprecedented pressure from rivals. Companies like AMD, Nvidia, and TSMC are making significant inroads, particularly in high-growth areas like artificial intelligence (AI) and accelerated computing. Fitch and S&P Global specifically noted that Intel has been lagging in capitalizing on the AI boom, a sector where Nvidia has a clear lead
Intel’s Foundry Business Has Been a Drain on Earnings
Fitch also weighed in on Intel’s foundry business, which has been a drain on its earnings and has saddled its balance sheet with billions of dollars in debt. In its note, Fitch said, “Intel’s more nuanced foundry strategy, linking future capital spending to committed customer demand, is a net credit positive, but it also highlights the elevated execution risks tied to the company’s technology roadmap.”
In a July filing with the SEC, Intel said it may “pause or discontinue” its foundry business if it is not able to secure customers.
“We have been unsuccessful to date in securing any significant external foundry customers for any of our nodes, and our prospects for securing a significant external foundry customer for Intel 14A are uncertain,” said Intel’s filing.
INTC Is Trying to Turnaround the Business
Intel is undergoing a significant corporate restructuring strategy that includes global layoffs to streamline operations, cut costs, and boost efficiency. This effort is aimed at making the company leaner and more competitive in the fast-changing semiconductor market. The measures have generally been received positively by the markets as they are seen as a necessary step for Intel to regain its footing.
CEO Lip-Bu Tan is working on a long-term plan to turn around Intel and outlined the strategy during the Q1 2025 earnings call. Firstly, he said that the company will focus on product development, stressing “best products always win.”
Secondly, he said that Intel will “refine” its AI strategy. “Our goal will be to take our integrated system and platform view to develop full-stack AI solutions that enable more accuracy, power efficiency, and security for our enterprise customers,” said Tan during the earnings call.
Thirdly, he talked about “building trust with foundry customers.” Gelsinger had big plans for Intel’s foundry business, but that segment has sagged and has been saddled with billions of dollars in losses.
Finally, he said that Intel will strengthen its balance sheet. He, however, said that the company has decided not to “spin off Intel Capital, but to work with the team to monetize our existing portfolio while being more selective on new investments that support the strategy.”
INTC Is a Pale Shadow of Its Glorious Past
Intel, which was once the world’s biggest chipmaker, is now a pale shadow of its glorious past.
A lot went wrong with INTC over the last two decades. Perhaps, most importantly, it misread the smartphone market and turned down the offer to supply processors for the Apple iPhone. The company believed that Apple might not be able to sell enough of these, and it was a tiny market to bet on.
As things turn out, global smartphone sales now far exceed PCs, and last year global smartphone shipments were 1.22 billion, which is almost five times PC shipments.
Intel was quite slow with innovation, and AMD gradually took its market share in the PC market. Apple, too, stopped using Intel chips for its Mac and instead pivoted to its own chips.
Intel’s woes are far from over, and Nvidia, AMD, and Qualcomm are looking to further eat into its PC market share with Arm-based semiconductors. Intel is still working with its x86 technology, which it created in 1981.
More recently, Intel seems to have lost out on the race in AI chips, even as rivals, especially Nvidia, are printing money selling AI chips.
