Intel to Cut 15% of Workforce as Part of $10 Billion Cost Reduction Plan

Intel has announced a significant cost-cutting measure, revealing it will reduce its workforce by 15% as part of a $10 billion strategy aimed at improving its financial health. This decision was disclosed in the company’s second-quarter earnings report released on Thursday.

Pat Gelsinger, Intel’s CEO, addressed the necessity of this drastic step in a memo, stating, “Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate.” He further elaborated, “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low.”

The company’s financial performance for the second quarter reflects these concerns, with reported revenues of $12.8 billion, marking a 1% decline from the previous year, and an income loss of $1.6 billion.

Historically, Intel was the leading chipmaker globally, dominating the PC and Mac markets. However, the company has struggled to keep pace with evolving technology trends. The rise of mobile computing over the past two decades caught Intel off guard, leading to a loss of market dominance to competitors such as Qualcomm and Texas Instruments, who now lead in mobile chip technology.

Moreover, Intel has also lagged behind in the burgeoning AI sector. Unlike Nvidia, which has surged in value due to its AI-related advancements, Intel has faced significant challenges. Its Foundry business, a key area of investment in 2024 aimed at capitalizing on the AI era, has been a major source of financial losses for the company.

Intel’s current situation comes at a crucial juncture for the chipmaking industry, which is witnessing increased US investment in domestic manufacturing and a global surge in demand for AI chips.

Jacob Bourne, an analyst at Emarketer, commented on Intel’s cost-cutting plan, stating, “Intel’s announcement of a significant cost-cutting plan including layoffs may bolster its near-term financials, but this move alone is insufficient to redefine its position in the evolving chip market.”

In addition to the layoffs, Intel is undertaking a major shift in its business model. The company plans to transition to manufacturing processors for other companies, effectively becoming a white label provider. This change targets companies like Apple, which designs its own chips but outsources production. Despite this shift, Taiwan’s TSMC remains the global leader in chipmaking. Intel’s strategy relies heavily on gaining support from both the global market and the US government, a transition expected to be costly and to result in further job losses.

Intel aims to achieve $10 billion in savings by 2025. To support its strategic pivot, the company plans to suspend its dividend payments starting in the fourth quarter of 2024, a move that halts previously planned shareholder payouts. Following this announcement, Intel’s stock fell by 19% in after-hours trading.

In related financial news, Amazon reported a 10% increase in sales for the last quarter, with its operating profit nearly doubling. However, the company’s forecast fell short of investor expectations, causing its stock to decline by 5% in after-hours trading.

Neil Saunders, an analyst at GlobalData Retail, noted, “Amazon will remain very profitable, but the pace at which it can add to the bottom line appears to be waning.”