Intel loses $26 billion in market cap on layoffs, cost-cutting plan

Shares of the semiconductor giant fell nearly 30 percent on Friday, a day after it announced a 15 percent job cut and other cost-cutting measures, including suspending dividends.

Shares of semiconductor giant Intel fell nearly 30 percent in a day on Friday after the company said it would cut costs, including mass layoffs of about 15,000 workers, as a way to regain growth.

Intel’s market capitalization has fallen by about $26 billion since the announcement on Thursday, and the company’s total market value as of Friday was about $95 billion.

News of the cuts, along with lowered guidance for the coming quarter, dealt a heavy blow to investor confidence. The company’s shares fell after hours on Thursday and began the trading day Friday at around $21, where they stayed for most of the day, down about 27 percent, or $8 per share.

(Related: ‘Painful news’: Intel plans to lay off 15,000 workers, cut costs by $10 billion)

As a result, Intel’s stock price fell the most since 1974 on Friday, according to CNBC, and the stock is at its lowest level since 2013.

The planned 15,000-worker layoff at Intel is also the biggest job cut in the tech industry since 2020 and surpasses the record set by Google in early 2013 when it shed 12,000 workers, according to data from British firm Business Financing.

Leading down

Intel CEO Pat Gelsinger told analysts Thursday during a conference call with financial analysts about the second quarter of fiscal 2024, the operational and capital improvements Intel is making will be particularly important as it manages the business in the near future.

“While we expect sequential revenue growth for the rest of the year, the pace of recovery will be slower than expected, which is reflected in our Q3 guidance. … Our guidance reflects industry-wide conditions with no significant changes to our market share information,” Gelsinger said. “When we look at Q4, normal seasonal revenue growth has historically been in the range of zero to 5 percent versus the prior quarter, with customer inventory levels improving in Q3. We see Q4 revenue at the higher end of that range.”

For Intel’s fiscal third quarter, the company expects revenue of $12.5 billion to $13.5 billion. That compares with the $14.6 billion Intel reported for the fiscal third quarter of 2023. It is also below analysts’ third-quarter forecast of $14.4 billion, according to MarketBeat.

Intel is also expected to report a GAAP loss of 24 cents per share and a non-GAAP loss of 3 cents per share, a significant decline from last year’s GAAP earnings of 7 cents per share and non-GAAP earnings of 41 cents per share. Analysts had been expecting fiscal third-quarter earnings of 31 cents per share, according to MarketBeat.

Striving to reduce costs

Gelsinger said the lower-than-expected growth in the fiscal second quarter was due in part to the unexpected timing of new export control restrictions announced in May, as well as the company’s decision to more quickly ramp up production of its Core Ultra AI processors, and other actions the company has taken to improve its position going forward.

“We’ve previously signaled that our investments in defining and driving the AI ​​PC category will put pressure on margins in the near term,” he said. “We believe the trade-offs are worth it. AI PCs will grow from less than 10 percent of the market today to more than 50 percent by 2026. We know today’s investment will accelerate and extend our leadership and deliver significant benefits for years to come.”

Intel aims to improve its financial results with a new cost-cutting plan that was unveiled along with the company’s fiscal second-quarter financial results, Gelsinger said.

“This plan represents the structural improvements enabled by our new operating model, which we are implementing to align with current business trends,” he said. “Separate financial reporting for Intel and Intel Foundry products clarifies and focuses roles and responsibilities across the company, and enables us to eliminate complexity and maximize the impact of our resources. Taking a clear view of the business allows us to take action and take broad actions starting this quarter.”

As a result, Gelsinger said, Intel expects to significantly reduce expenses and headcount starting in the second half of 2024.

“We are committed to achieving more than 15 percent of our workforce reduction by the end of 2025, with the majority of these actions expected to be completed by the end of this year,” he said. “We do not take this lightly. We have carefully considered the impact this will have on the Intel family. These are difficult but necessary decisions.”

Intel’s layoffs, combined with other actions, are expected to reduce capital expenditures in 2024 to about $20 billion and operating expenses in 2025 to $17.5 billion, which Gelsinger said is more than 20 percent lower than previous estimates.

“We expect to see further benefits in 2026 as operating expenses decline again in absolute dollars,” he said. “Even as we reduce overall expenses, we will continue to fund the investments needed to execute our strategy.”

Intel’s new operating model also benefits the company’s capital requirements, providing transparency to more closely scrutinize every project and every dollar of capital, Gelsinger said. As a result, Intel now expects gross capital expenditures in 2024 to be between $25 billion and $27 billion, more than 20 percent below the company’s plan for that year.

However, thanks to the successful execution of Intel’s Smart Capital strategy to attract outside investment in its chip manufacturing business, including its partnership with Apollo Global Management, the company expects net capital expenditures to be between $11 billion and $13 billion in 2024, he said.

The cost-cutting plan will also carry over into next year, Gelsinger said, with gross capital expenditures in 2025 expected to be between $20 billion and $23 billion and net capital expenditures between $12 billion and $14 billion. The company also plans to reduce cost savings and constant cost of sales by about $1 billion in 2025.

“Once again, these reductions do not impact our ability to execute on our plan,” he said. “We have designed our Smart Capital strategy to allow us to conservatively manage the day-to-day business to maintain trend-line growth, while maintaining the operational flexibility to quickly and cost-effectively capture growth when it occurs.”

Gelsinger said Intel will also suspend its dividend starting in the fourth quarter to prioritize liquidity and support investments needed to execute its strategy.

Intel in numbers

For the second quarter of fiscal 2024, which ended June 29, Intel reported total revenue of $12.84 billion, down 1.0% from the $12.95 billion the company reported for the second quarter of fiscal 2023.

According to Seeking Alpha, revenue was $150 million below analysts’ expectations.

For Intel, client computing services revenue was $7.41 billion, up from $6.78 billion last year; data center and artificial intelligence services revenue was $3.05 billion, down from $3.16 billion; and networking and edge services revenue was $1.34 billion, down from $1.36 billion.

As for Intel Foundry, the company reported revenue of $4.32 billion, up from $4.17 billion.

For the quarter, Intel reported a GAAP net loss of $1.61 billion, or 38 cents per share, a significant change from the prior-year net income of $1.47 billion, or 25 cents per share. On a non-GAAP basis, Intel reported net income of $83 million, or 2 cents per share, a decrease from the prior-year net income of $547 million, or 13 cents per share.

Intel’s non-GAAP earnings were 8 cents per share below analysts’ expectations, according to Seeking Alpha.