Chipmaker Intel announced that it will be cutting 15% of its large workforce, totaling about 15,000 jobs, as part of its strategy to reinvigorate its business and keep up with competitors such as Nvidia and AMD.
CEO Pat Gelsinger revealed in a memo to employees that the company aims to save $10 billion by 2025.
“We need to align our cost structure with our new operational model and make significant changes to our operations,” he stated in the memo posted on Intel’s website. “Our revenue growth has not met expectations, and we have yet to fully capitalize on trends like AI. Our costs are too high, and our profit margins are too low.”
The decision to cut jobs follows a disappointing quarter and outlook for the renowned chip manufacturer, founded in 1968 during the dawn of the PC era.
Gelsinger also mentioned that Intel will introduce an “enhanced retirement offering” for eligible employees in the coming week, along with a voluntary departure application process.
“These choices have been extremely difficult for me, and this is the toughest decision I have had to make in my career,” he expressed. The majority of the job cuts are anticipated to be completed within the current year.
Additionally, the California-based company is halting its stock dividend as part of a broader cost-cutting initiative. Intel reported a loss for the second quarter and a slight decrease in revenue and projected third-quarter revenues below analysts’ forecasts.
After-hours trading saw Intel’s stock drop by 19%, indicating a potential $24 billion loss in market value when trading opens on Friday.
During the April-June period, the company recorded a $1.6 billion loss, or 38 cents per share, compared to a $1.5 billion profit, or 35 cents per share, in the same period last year. Adjusted earnings, excluding special items, were 2 cents per share. Revenue declined by 1%, from $12.9 billion to $12.8 billion.
According to FactSet’s poll, analysts had anticipated earnings of 10 cents per share on revenue of $12.9 billion.
“Intel’s recent announcement of substantial cost-cutting measures, including layoffs, may provide a short-term boost to its financials, but it is not sufficient to redefine its position in the evolving chip market,” stated eMarketer analyst Jacob Bourne. “The company is at a critical juncture as it leverages U.S. investments in local manufacturing and the increasing global demand for AI chips to solidify its standing in chip production.”
Gelsinger highlighted in a call with analysts that previous investments in the AI PC market had impacted profit margins in the short run but were expected to benefit the company in the long term.
Unlike competitors like Nvidia, Intel not only designs chips but also manufactures them. The company has been focusing on expanding its foundry business to produce semiconductors in the U.S., competing with industry leader Taiwan Semiconductor Manufacturing Co. (TSMC).
With Gelsinger’s advocacy since assuming the CEO position in 2021, Intel has been a major beneficiary of the 2022 CHIPS and Science Act. The Biden administration helped push the legislation through Congress in response to concerns following the pandemic about the potential economic impact of losing access to chips made in Asia.
In March, President Joe Biden celebrated an agreement to provide Intel with up to $8.5 billion in direct funding and $11 billion in loans for computer chip plants across the nation. This investment was highlighted in Arizona, a significant political battleground state, with Gelsinger lauding the CHIPS Act as pivotal industrial policy legislation akin to that seen during World War II.
In September 2022, Biden commended Intel as a job creator for its plans to establish a new plant near Columbus, Ohio. He praised the company for its commitment to creating a “future-ready workforce” for the $20 billion project, which is projected to create 7,000 construction jobs and 3,000 permanent positions with an average salary of $135,000.
“The U.S. government aims to revitalize domestic manufacturing, particularly in advanced computer chip technologies,” Bourne explained. “Intel has been earmarked to receive these funds, but the process involves considerable infrastructure development for these specialized facilities, as well as upskilling the local workforce where the plants are situated. This transformation takes time and is not an overnight undertaking.”
Associated Press Writer Josh Boak contributed from Washington.