San Francisco: Intel, the Silicon Valley chipmaker, said Thursday that it would slash more than 15,000 jobs to aid a turnaround plan, as the company tries to recover after a series of stumbles.
The job cuts amount to 15 per cent of Intel’s workforce. The company also announced other restructuring moves and a reduction in capital spending, which are expected to cut costs by $10 billion in 2025. To conserve cash, Intel said it will suspend its quarterly dividend in the fourth quarter.
“This is painful news for me to share,” Patrick Gelsinger, Intel’s CEO, said in a letter to employees. “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.”
The company’s stock fell more than 20 per cent in after-hours trading.
Intel, which produces microprocessor chips that serve as electronic brains in most computers, has battled a slump amid stiff competition in chips used for artificial intelligence. Its last major restructuring was in 2016, when the company said it would cut up to 12,000 jobs, or 11 per cent of its workforce.
Gelsinger has worked to reinvigorate the company after being named its top leader in early 2021. Among other actions, he quickly moved to become a top industry lobbyist for federal subsidies to encourage more US production of the foundational components.
He also has tried to fix Intel’s manufacturing issues. Unlike most of its peers, Intel makes chips as well as designs them. Others rely on outside production services called foundries, with most turning to Taiwan Semiconductor Manufacturing Co.
Before Gelsinger became Intel’s CEO, TSMC had surpassed Intel in delivering regular advances in production technology that gives chips more computing power. He embarked on a costly effort to deliver five new technology generations — which historically arrived every two years or so — in four years. That effort is producing results, but with heavy costs.
Gelsinger also launched a parallel plan to build more factories and turn Intel into a major foundry making chips for others. That strategy helped Intel become the largest beneficiary in March of U.S. legislation known as the CHIPS Act, tentatively winning federal grants totaling $8.5 billion.
Besides manufacturing issues, Intel ran into product problems. Demand for personal computers that use its chips slumped last year. At the same time, customers have turned to rival Nvidia for AI chips for data centers, even as Intel has responded to the AI boom by adding features to its standard chips and offering a special-purpose chip line called Gaudi. Advanced Micro Devices, another rival, has also grabbed market share in standard data center chips and new products tailored for AI.
Intel said on Thursday that revenue in its data center business fell 3 per cent in the second quarter. In contrast, AMD on Tuesday reported a 115 per cent jump for its data center business.
Overall, Intel swung to a loss of $1.6 billion in the second quarter, while revenue fell 1 per cent to $12.8 billion. Its gross profit margin, a closely watched metric that once averaged around 65 per cent, was 35.4 per cent in the quarter.
In his letter to employees, Gelsinger said revenue had not grown as expected, and the company had yet to fully benefit from major trends like AI. Intel posted about $24 billion less revenue last year than it did in 2020, yet its workforce is 10 per cent larger, he wrote.
“There are a lot of reasons for this, but it’s not a sustainable path forward,” he wrote.
Beyond the costs, Gelsinger said Intel was still too bureaucratic and inefficient, despite past attempts to streamline operations. As part of the restructuring, he said the company will trim the number of products it sells, stop nonessential work and reduce capital spending more than 24 per cent. Many of the job cuts will be accomplished through early retirement and voluntary departure programs, he added.
The job cuts “have challenged me to my core, and this is the hardest thing I’ve done in my career,” Gelsinger wrote. He pledged that Intel would “prioritize a culture of honesty, transparency and respect in the weeks and months to come.”
For the current quarter, Intel projected a gross profit margin of 34.5 per cent and revenue of $12.5 billion to $13.5 billion, below analyst estimates of $14.3 billion.
Gelsinger and David Zinsner, Intel’s chief financial officer, said on a conference call that one reason for the disappointing projection was the PC market. Computer makers have built up excess chip inventories as demand for such systems has slowed, particularly in China.
At the same time, Intel has bet that a new generation of AI PCs will drive more demand. The microprocessors it developed for such machines are composed of multiple chips, a large portion of which are manufactured by external foundries and cost Intel more than those produced in its own factories, Zinsner said. As Intel starts making such components internally, profit margins will improve, he added.
Gelsinger predicted that the investments in such components would pay off as AI PCs grew to more than half the PC market by 2026.