Intel is cutting 15% of its workforce as part of a $10 billion cost-reduction plan, the company announced in its second-quarter earnings report on Thursday.
CEO Pat Gelsinger outlined the need for significant changes, stating in a memo, “Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate. 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.”
Intel reported second-quarter revenue of $12.8 billion, down 1% from the previous year, and a loss of $1.6 billion.
Once the leading chipmaker globally, Intel has seen its dominance wane in recent years. The rise of mobile computing caught the company off guard, and it has since been eclipsed in market value by Qualcomm and Texas Instruments, which lead the mobile chip sector. Additionally, Intel missed the AI boom, falling behind Nvidia, which has surged in value thanks to its focus on artificial intelligence. Intel’s most significant losses have come from its chip-making Foundry business, which it is heavily investing in for the AI era.
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As the US invests in domestic chip manufacturing and global demand for AI chips rises, Intel is at a critical juncture. “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,” said Emarketer analyst Jacob Bourne.
Intel is also taking a risky step by altering its business model to manufacture chips for other companies, such as Apple, which designs its own silicon but outsources production. With Taiwan’s TSMC currently leading in global chipmaking, Intel is betting that both the global market and US government will support another major chip manufacturer. However, this pivot will be costly and is expected to result in thousands of job losses.
The company aims to cut $10 billion in costs by 2025 and will suspend its dividend payments starting in the fourth quarter of 2024. This decision led to a 19% drop in Intel shares during after-hours trading.
In other tech news, Amazon reported a 10% increase in sales for the last quarter and nearly doubled its operating profit. However, disappointing guidance caused Amazon’s stock to fall 5% in after-hours trading.
“Amazon will remain very profitable, but the pace at which it can add to the bottom line appears to be waning,” noted Neil Saunders, an analyst at GlobalData Retail.
(Includes inputs from online sources)
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