Editor-DN
- Intel has announced a major restructuring plan that will result in 18,000 job cuts at the company.
- The news follows a troubling quarterly earnings report, which revealed a massive loss of $1.6 billion in the latest quarter.
Intel Corporation is undergoing its most significant restructuring effort in four decades. The company has announced a 15 percent reduction in its workforce to cut costs by $10 billion. The cuts will result in 19,000 employees out of its 125,000-strong workforce. The move comes amid growing financial uncertainty, including a $1.6 billion loss in its latest quarterly report. The retrenchment is expected to be completed by the end of 2024.
The company also announced a 20 percent reduction in capital expenditures compared to previous estimates. While NVIDIA has benefited from the AI boom, AMD has seen 115% YoY growth. Intel’s cuts come despite receiving $8.5 billion in grants and $11 billion in loans from the Biden administration. After that, Intel’s capex would be only 50 percent of that of tech companies like Microsoft and Amazon. The company is expected to reduce R&D, marketing and non-essential work expenses.
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Financial stress
Intel is struggling financially, as revealed in an underwhelming Q2 report that fell short of Wall Street expectations. The company reported a loss per share of 38 cents, compared with a profit of 35 cents per share last year. Revenues declined by 1 percent. Despite adjusted earnings, analysts had expected 10 cents per share. The restructuring is part of Intel’s strategy to regain market share from rival firms such as Nvidia and AMD.
While sales of the PC and server businesses remain profitable, the company’s losses came mostly from its foundry business. Like most competitors, the company relies in part on TSMC to produce some of its most advanced chips. This worsened when Microsoft followed Apple in abandoning Intel chips and starting a new collaboration with Qualcomm. However, the company has some positive news with its Lunar Lake and Panther Lake projects, which will improve its cost structure.
Due to challenging market conditions and high costs associated with ramping up AI chip manufacturing, the chip giant’s share price fell as much as 25 percent after the quarterly earnings report came out. However, new cost-cutting measures will save $10 billion in 2025.
Mitigation measures
Intel plans to reduce its costs by simplifying its product portfolio and cutting its underperforming products from the production line. In addition to the layoffs, Intel has also announced its intentions to freeze dividend distributions to improve liquidity and facilitate financial sustainability. The company is poised to focus its US investment on domestic manufacturing capabilities and support chip manufacturing facilities to meet demand for AI chips.
Takeaways
While such moves are likely to improve the company’s financial performance in the short term, there remains considerable uncertainty about the company’s position in the chip market. These decisions are likely to be important for Intel as it seeks to balance economic growth with the need to innovate for the foreseeable future.
