Intel plans to lay off 15% of its workforce – at least 15,000 people

Intel announced it will lay off 15% of its workforce as part of a $10 billion cost-cutting program.

The most significant of these cost cuts is the announcement that the company will lay off 15% of its workforce by the end of 2024. The company said it had 125,300 employees as of June 29, which could mean 18,795 job cuts. (A spokesperson said the figure is more like 15,000.)

The large chipmaker made the announcement today, posting weak earnings. Revenue in the second quarter was $12.8 billion, down 1% from a year earlier. Non-GAAP earnings per share were 2 cents, and a GAAP loss per share was 38 cents. Analysts had expected Intel to report adjusted earnings per share of 10 cents on revenue of $12.94 billion.

By comparison, Intel rival Advanced Micro Devices last week reported second-quarter revenue of $5.8 billion, up 9% from a year earlier and exceeding analysts’ expectations.

Intel said it will suspend its dividend starting in the fourth quarter of 2024. Intel shares fell 16.9% in after-market trading to $24.14 per share after closing at $29.05 per share.

“Our second-quarter financial results were disappointing, even as we achieved key product and process technology milestones. Trends in the second half of the year are more challenging than we expected, and we are leveraging our new operating model to take decisive actions that will improve operational and capital efficiencies while accelerating our IDM 2.0 transformation,” Intel CEO Pat Gelsinger said in a statement. “These actions, combined with the introduction of Intel 18A next year to regain our leadership in process technology, will strengthen our market position, improve our profitability, and create shareholder value.”

“Second-quarter results were impacted by gross margin headwinds from accelerated growth in our AI PC product, higher-than-usual charges related to non-core business activities, and the impact of idle manufacturing capacity,” Intel Chief Financial Officer David Zinsner said in a statement. “As we implement our expense reductions, we are taking proactive steps to improve our earnings and strengthen our balance sheet. We expect these actions to significantly improve liquidity and reduce our debt position, while enabling us to make the right investments to drive long-term shareholder value.”

Cost Reduction Plan

Intel announced a series of initiatives to create a sustainable financial engine that will accelerate profitable growth, enable continued operational efficiency and flexibility, and create the potential for continued strategic investments in technology and manufacturing leadership.

These initiatives follow the establishment of separate financial reporting for Intel Products and Intel Foundry, which provides a “clean” view of the business and uncovers significant opportunities to drive operational and cost efficiencies. The actions include a structural and operational realignment across the company, headcount reductions, and a reduction in operating and capital costs by more than $10 billion in 2025 compared to previous estimates.

As a result of these actions, Intel expects to have a clear vision for a sustainable business model with the continued financial resources and liquidity needed to support the company’s long-term strategy.

The plan will enable the next phase of the company’s multi-year transformation strategy and focuses on four key priorities:

Reduction of operating costs:The company will streamline its operations and significantly reduce expenses and headcount by reducing non-GAAP research and development and marketing, general and administrative (MG&A) expenses to approximately $20 billion in 2024 and approximately $17.5 billion in 2025, with additional reductions expected in 2026. Intel expects to reduce its headcount by more than 15%, with most of the changes to be completed by the end of 2024.

Reducing capital expenditure: With the end of its historic journey of five nodes in four years in sight, Intel is now shifting its focus toward capital efficiency and market-driven investment levels. This will reduce gross capital expenditures in 2024 by more than 20% from previous guidance, resulting in gross capital expenditures in 2024 of $25 billion to $27 billion. Intel expects net capital expenditures in 2024 of $11 billion to $13 billion. In 2025, the company is targeting gross capital expenditures of $20 billion to $23 billion and net capital expenditures of $12 billion to $14 billion.

Reducing sales costs:The company expects to generate $1 billion in constant cost of sales savings in 2025. Product mix will continue to be a headwind next year, contributing to a modest year-over-year improvement in gross margin in 2025.

Maintaining core investments to deliver strategy: The company continues to advance its long-term innovation and leadership path in process and product technologies, and the increased efficiencies in its operations are expected to further support its execution. Additionally, Intel continues to invest in building a resilient and sustainable semiconductor supply chain in the United States and around the world.

In a note to employees, Gelsinger said: “This is painful news for me to share. I know it will be even more difficult for you to read. This is an incredibly difficult day for Intel as we embark on some of the most significant changes in the history of our company.”

He added: “Put simply, we need to align our cost structure with our new operating model and fundamentally change the way we do things. Our revenues have not grown as expected – and we have not yet fully benefited from powerful trends like AI. Our costs are too high, our margins are too low. We need bolder action to address both of these issues – especially given our financial performance and the outlook for the second half of 2024, which are more challenging than previously expected.”

And Gelsinger said: “These decisions have challenged me deeply, and they are the hardest thing I’ve done in my career. My pledge to you is that in the weeks and months ahead, we will champion a culture of honesty, transparency and respect.”

Intel is taking the additional step of suspending its dividend from the fourth quarter, recognizing the importance of prioritizing liquidity to support investments needed to execute its strategy. The company is reaffirming its long-term commitment to a competitive dividend as cash flow improves to sustainably higher levels.

Intel previously announced the implementation of an internal foundry operating model, effective in the first quarter of 2024, that created a foundry relationship between its Intel Products business (collectively CCG, DCAI and NEX) and its Intel Foundry business (comprising Foundry Technology Development, Foundry Manufacturing and Supply Chain, and Foundry Services (formerly IFS)).

The foundry operating model is a key part of the company’s strategy and is designed to transform operational dynamics and increase transparency, accountability and focus on cost and efficiency. The company also previously announced its intention to operate Altera as a standalone business starting in the first quarter of 2024. Altera was previously included in DCAI segment results.

As a result of these changes, the company has modified its segment reporting in the first quarter of 2024 to align with this new operating model. All segment data from prior periods has been retrospectively adjusted to reflect how the company internally receives information, manages and monitors operating segment performance beginning in fiscal 2024. There are no changes to Intel’s consolidated financial statements for any prior periods.

Intel Product Highlights

CCG:Intel continues to define and drive the AI ​​PC category, having shipped more than 15 million AI PCs since December 2023, significantly more than all of Intel’s competitors combined, and is on track to ship more than 40 million AI PCs by year-end. Lunar Lake, the company’s next-generation AI processor, has reached production launch in July 2024, ahead of schedule, with shipments beginning in the third quarter. Lunar Lake will power more than 80 new Copilot+ PCs from more than 20 OEMs.

DCAI: More than 130 million Intel Xeon processors currently power data centers worldwide, and at Computex, Intel introduced the next-generation Intel Xeon processor 6 with Efficient cores (E-cores), codenamed Sierra Forest, the company’s first Intel 3 server product designed for high-density, scalable workloads. Intel expects Intel Xeon processors 6 with Performance cores (P-cores), codenamed Granite Rapids, to begin shipping in the third quarter of 2024. The Intel Gaudi 3 AI Accelerator is also on track for launch in the third quarter and is expected to deliver about twice the performance per dollar for both inference and training compared to the leading competitor.

NEXT: Intel announced a series of AI-optimized Ethernet scale-out solutions, including the Intel AI Network Adapter and Foundry chiplets, which will launch next year. The new enterprise-class infrastructure processing unit (IPU) adapters are now widely available and supported by Dell Technologies, Red Hat, and others. IPUs will play an increasingly important role in Intel’s accelerator portfolio, which the company says will help drive AI data center growth and profitability in 2025 and beyond. Additionally, Intel and others announced the creation of Ultra Accelerator Link, a new industry standard dedicated to advancing high-speed, low-latency communications for AI systems in data centers.
Intel Foundry Highlights

Intel is nearing completion of its promised five-node-in-four-year strategy, and Intel 18A is on track to be production-ready by the end of this year, with wafer production starting in the first half of 2025. Intel released the 1.0 PDK for Intel 18A to customers from the Foundry in July 2024. The company’s first two Intel 18A products, Panther Lake for customers—the first microprocessor to use RibbonFet, PowerVia, and advanced packaging—and Clearwater Forest for servers, are on track to launch in 2025.

This quarter, Intel named industry veteran Kevin O’Buckley to head of Foundry Services. The company also recently named Naga Chandrasekaran to head of Intel Foundry Manufacturing and Supply Chain. Their leadership will support Intel’s continued growth as the premier systems foundry for the AI ​​era.

Intel announced its second Semiconductor Co-Investment Program (SCIP) agreement, a joint venture with Apollo for Intel’s Fab 34 in Ireland. SCIP is a component of Intel’s Smart Capital strategy, a financing approach designed to create financial flexibility to accelerate the company’s strategy, including investing in its global manufacturing operations, while maintaining a strong balance sheet.