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A Missouri-based pension fund is accusing Intel, in a class action lawsuit, of hiding problems about its in-house chips manufacturing business ahead of the company's reported net loss and mass layoff of 15,000 jobs.
Intel on August 1 announced a 15% reduction of its workforce after reporting a net loss of $1.6 billion for the second quarter.
The Silicon Valley company, which once led the chips industry, has struggled to catch up with its rivals, mainly Nvidia, a longtime competitor that now has a stranglehold on the GPU business amid the AI race.
A lawsuit filed in a San Francisco federal court on Wednesday, naming CEO Patrick Gelsinger and CFO David Zinsner as co-defendants, claimed that Intel hid problems about its in-house chips manufacturing business that led to the dismal second-quarter earnings result. The lead plaintiff of the lawsuit is the Construction Laborers Pension Trust of Greater St. Louis, filed on behalf of other Intel investors.
Unlike many of its rivals, Intel designs and manufactures chips through its foundry factories. The decision helped Intel tentatively win a $8.5 billion federal grant through the CHIPS Act.
According to the lawsuit, the company told investors that this in-house model will allow Intel to save "$8 to $10 billion exiting 2025."
But the move turned out to be much more costly than investors anticipated, the complaint said.
"Unbeknownst to investors, however, Intel's foundry business was floundering, costing billions of dollars more than investors had been led to believe even while revenue growth in the division actually declined during the Class Period," the lawsuit said, referring to the period from January 25 to August 1, 2024.
The lawsuit accused Intel, along with its CEO and CFO, of making false and misleading statements that "artificially inflated" the company's stock price.
A spokesperson for Intel declined to comment.
Shareholders in the lawsuit highlighted statements from defendants that they say showed the "purported success" of the company's business units, including the foundry model.
One statement came from a January 2024 press release from Zinsner, who said: "We continued to drive operational efficiencies in the fourth quarter, and comfortably achieved our commitment to deliver $3 billion in cost savings in 2023. We expect to unlock further efficiencies in 2024 and beyond as we implement our new internal foundry model, which is designed to drive greater transparency and accountability and higher returns on our owners' capital."
Shareholders alleged in the lawsuit that these were "materially false and misleading" statements that failed to disclose that "Intel's foundry business was suffering from ballooning costs and required substantially more capital expenditures than investors had been led to believe and, as a result, had suffered $7 billion in losses in 2023."
James Park, a securities regulation expert at the University of California, Los Angeles, told Business Insider email that the lawsuit contained a fairly "standard set of allegations."
"Intel will probably argue that the claim there would be cost savings was a forward-looking statement," he said, which is protected by the Private Securities Litigation Reform Act's safe harbor provision.
