Intel has announced its intention to lay off 15% of its staff as part of a comprehensive $10 billion cost reduction plan.
The staff reduction, to be completed by the end of 2024, will affect 15% of its employees. With a workforce of 125,300 employees as of June 29, this will involve the layoff of approximately 18,795 people (according to a spokesperson, the figure exceeds 15,000 layoffs).
The semiconductor company made this announcement while reporting mediocre financial results. Second-quarter revenues reached $12.8 billion, a 1% decrease from the previous year. Non-GAAP earnings per share were 2 cents, while GAAP earnings per share saw a loss of 38 cents. Analysts had expected adjusted EPS of 10 cents on revenues of $12.94 billion.
In contrast, competitor Advanced Micro Devices reported revenues of $5.8 billion for the second quarter, a 9% increase from the previous year and exceeding analysts’ expectations.
Intel also announced the suspension of its dividend starting from the fourth quarter of 2024. The company’s shares fell by 16.9% in after-hours trading, dropping to $24.14 per share after closing at $29.05 per share.
“Our second-quarter financial performance was disappointing, even as we achieved key milestones in process and product technology. Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will enhance operational and capital efficiencies while accelerating our IDM 2.0 transformation,” said Pat Gelsinger, CEO of Intel. “These actions, combined with the launch of Intel 18A next year, will strengthen our market position, improve our profitability, and create value for shareholders.”
“Second-quarter results were affected by gross margin obstacles arising from the acceleration of our AI PC product production, higher-than-usual expenses related to non-core businesses, and the impact of unused capacity,” said David Zinsner, Intel’s CFO. “By implementing our cost reductions, we are taking proactive measures to improve our earnings and strengthen our balance sheet. We expect these actions to significantly enhance liquidity and reduce our debt balance, allowing us to make appropriate investments to generate long-term value for shareholders.”
Cost Reduction Plan
Intel has launched a series of initiatives to create a sustainable financial engine that drives profitable growth, enhances operational efficiency and agility, and enables continued strategic investment in technology and manufacturing leadership.
These measures include the establishment of separate financial reporting for Intel Products and Intel Foundry, uncovering significant opportunities for improving operational and cost efficiencies. Actions encompass structural and operational realignment across the company, staff reductions, and operational and capital expense cuts of more than $10 billion in 2025 compared to previous estimates.
With these measures, Intel aims to achieve a sustainable business model with the financial resources and liquidity necessary to support its long-term strategy.
The plan focuses on four key priorities:
- Reduction of operational expenses: Optimization of operations and significant reduction of expenses and staff, with non-GAAP R&D and MG&A expenses reduced to $20 billion in 2024 and $17.5 billion in 2025.
- Reduction of capital expenses: Focus on capital efficiency and investment levels aligned with market requirements, reducing gross capital expenses in 2024 by more than 20% compared to previous projections.
- Reduction of cost of sales: Generation of $1 billion in savings in non-variable sales costs in 2025.
- Maintaining core investments to execute the strategy: Progress in long-term innovation and leadership in process and product technology, with increased efficiency supporting further execution.
In a memo to staff, Gelsinger expressed: “It is painful news to share. This is an incredibly difficult day for Intel, as we are making some of the most significant changes in our company’s history.” He added that it is essential to align the cost structure with the new operating model and fundamentally change how the company operates.
Intel has also suspended the dividend from the fourth quarter, prioritizing liquidity to support necessary investments. The company reaffirms its commitment to a competitive dividend as cash flows improve to sustainably higher levels.
Intel has implemented an internal foundry operating model since the first quarter of 2024, creating a foundry relationship between its Intel Products business and its Intel Foundry business. This model is a key component of the company’s strategy, designed to drive transparency, accountability, and focus on costs and efficiency.
By: Nestor Castillo, ForAllTechNews Director