Intel Reorganization Under Fire: Securities Lawsuit Alleges Misleading Statements After Stock Plunge

A securities class action lawsuit claims Intel misled investors, leading to a stock plunge.

From Promised Transparency to Hidden Losses: Investor Challenges Intel's Reorganization

Intel Corporation (INTC) is facing a class action lawsuit after its stock price took a nosedive. The suit, filed on May 3, 2024, alleges the company misled investors about a major internal shakeup that separated its manufacturing services into a new segment.

The lawsuit centers on Intel's rollout of an "internal foundry model" announced in October 2022. This model promised greater transparency by separating revenue streams and internal manufacturing costs. Investors were optimistic, as Intel touted the model's ability to cut costs and boost profits.

A look inside Intel's business and restructuring

For context, Intel designs and manufactures computer chips, including processors and graphics cards. In March 2021, CEO Pat Gelsinger introduced a future vision for the company called "IDM 2.0." This plan involved restructuring Intel into five segments, with one being Intel Foundry Services (IFS) that focused on packaging and process technology.

Losses emerge, casting doubt on the model's success

Back to the lawsuit's claims. The suit alleges that Intel failed to disclose crucial details about the internal foundry model. Here's where things get complicated for Intel:

  • Revealed Losses: A revised financial report in April 2024 revealed a $7 billion operating loss for the Foundry segment in 2023. This news shattered investor confidence in what was supposed to be a profitable venture.

  • Revenue Shortfall: The new reporting structure also exposed a 10% year-over-year decline in revenue for the Foundry segment in Q1 2024. This raised serious concerns about the segment's overall health.

  • Investor Confidence Plummets: Unsurprisingly, these revelations triggered a double whammy for Intel's stock price, leaving investors who bought into the reorganization licking their wounds.

Investor sues, claiming securities violations

Patricia Quille, the plaintiff, lodged the lawsuit in the U.S. District Court for the Northern District of California, claiming that Intel breached federal securities laws. The lawsuit alleges that between January 25 and April 25, 2024, Intel made false and misleading statements about the internal foundry model. Specifically, Quille claims Intel failed to disclose:

  • The true impact of the model on the Foundry segment's revenue growth.
  • The significant operating losses the Foundry segment was experiencing.
  • The decline in product profit due to lower internal revenue within the Foundry.
  • The potential drawbacks of the model for Intel's long-term strategy.

Seeking justice and compensation for investors

The Intel securities class action lawsuit seeks to secure compensation for shareholders who bought Intel stock during the specified class period. This case highlights the importance of transparency during corporate restructurings and the potential legal repercussions companies face when failing to fully inform investors about significant operational changes.

The investors are represented by Robert V. Prongay, Charles H. Linehan, and Pavithra Rajesh of Glancy Prongay & Murray LLP.

The Intel securities class action lawsuit is Patricia Quille et al v. Intel Corporation et al, Case No. 3:24-cv-02683-TLT in the U.S. District Court for the Northern District of California.

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