Shares in Intel plummet over 20 percent after chip giant confirms thousands of job losses and suspends dividend payments
Intel has shocked Wall Street with its disappointing second quarter financial results, which revealed the scale of the challenge still facing the firm in its turnaround plan.
Intel CEO Pat Gelsinger used the publishing of the Q2 results to also send a memo to Intel’s workforce, announcing “significant actions to reduce our costs.” He said that Intel therefore plans “to deliver $10 billion in cost savings in 2025, and this includes reducing our headcount by roughly 15,000 roles, or 15 percent of our workforce.
Gelsinger said the majority of these actions will be completed by the end of 2024. The thousands of job losses for the 116,500 (as of 30 June) employees had been expected, after reports surfaced earlier this week that large-scale job losses were on the cards during the Q2 announcement.
Job losses
The confirmation that 15,000 jobs will be axed comes after Intel had laid off roughly 5 percent of its workforce in 2023, as well as a previous round of job cuts in October 2022.
“This is painful news for me to share,” Gelsinger told staff. “I know it will be even more difficult for you to read. This is an incredibly hard day for Intel as we are making some of the most consequential changes in our company’s history.”
“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” said Gelsinger. “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. We need bolder actions to address both – particularly given our financial results and outlook for the second half of 2024, which is tougher than previously expected.”
Intel chief executive Pat Gelsinger. Image Credit: Intel
“These decisions have challenged me to my core, and this is the hardest thing I’ve done in my career,” said Gelsinger. “My pledge to you is that we will prioritise a culture of honesty, transparency and respect in the weeks and months to come.”
Gelsinger also stated that next week Intel will announce a “company-wide enhanced retirement offering for eligible employees and broadly offer an application program for voluntary departures.”
IDM 2.0
Gelsinger has been seeking to turn around Intel’s fortunes for a while now, which involve creating a foundry business for Intel, but also carrying on with heavy investments in new plants and R&D.
Gelsinger had implemented the turnaround plan (called IDM 2.0) in March 2021, and it is designed to regain the company’s competitive edge, and help it focus on revitalising its manufacturing capabilities (including manufacturing chips for other companies), investing in advanced chip technologies, and expanding into new markets.
However industry observers believe it will take years to realise the plan to turn around Intel’s foundry business, and many expect TSMC to maintain its foundry lead in the coming years.
Not competitive
“Since introducing our new operating model, we have taken a clean-sheet view of the business and assessed ourselves against benchmarks for high-performing foundries, fabless product companies and corporate functions,” Gelsinger told staff this week.
“This work made it clear our cost structure is not competitive.”
He provided the example that Intel’s annual revenue in 2020 was about $24 billion higher than it was 2023, yet Intel’s current workforce was actually 10 percent larger now than it was then.
“There are a lot of reasons for this, but it’s not a sustainable path forward,” he wrote. “Beyond our costs, we need to change the way we operate. There’s too much complexity, so we need to both automate and simplify processes. It takes too long for decisions to be made, so we need to eliminate bureaucracy. And there’s too much inefficiency in the system, so we need to expedite workflows.”
Gelsinger said the key priorities going forward are therefore to reduce operational costs; simplify its portfolio; eliminate internal complexity; reduce capital and other costs; suspending Intel’s dividend; and maintain growth investments as part of its “unchanged” IDM2.0 strategy.
Disappointing Q2 financials
Gelsinger’s bleak assessment of Intel’s current position and the pledge to cut costs, came as the chip giant revealed disappointing second quarter financial results, coupled with a poor outlook.
For the second quarter ending 29 June, Intel posted a net loss of $1.6 billion, compared to a net profit of $1.5 billion in the same year-ago quarter.
Revenue fell 1 percent to $12.8 billion from $12.9 billion a year ago.
“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestonee,” said Gelsinger. “Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation.”
“These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value,” said Gelsinger.
Intel forecast third-quarter revenue below market estimates, as the firm contends with a decline in data centre semiconductors spending, coupled with a focus on AI chips, where it lags the likes of Nvidia.
Intel’s financials also revealed the firm has cash and cash equivalents of $11.29 billion, but it has total current liabilities of about $32 billion.
Intel’s share price fell 20.8 percent in extended trading, and as of Friday morning was at $29.05, as investors and the markets reacted to the news.
