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Intel announced it would lay off 15 percent of its workforce as part of a sweeping $10 billion cost-cutting program.
The most significant of these cost-cutting measures is the announcement that it will cut 15% of its workforce by the end of 2024. The company said it had 125,300 employees as of June 29, meaning the layoffs would be 18,795. (A spokesperson said the number is more than 15,000.)
The chipmaker made the announcement today as it reported weak earnings. Second-quarter revenue was $12.8 billion, down 1 percent from a year ago. Non-GAAP earnings per share were 2 cents, while GAAP net 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.
Meanwhile, Intel’s rival AMD reported last week that second-quarter revenue rose 9 percent from a year ago to $5.8 billion and beat analysts’ expectations.
Intel said it will suspend its dividend starting in the fourth quarter of 2024. Intel shares fell 16.9% in after-hours trading, closing at $29.05 per share before falling to $24.14 per share.
“While our second-quarter financial results were disappointing, we achieved key product and process technology milestones,” Intel CEO Pat Gelsinger said in a statement. “The second half of the year is more challenging than we expected, and we are taking decisive action to leverage our new operating model to improve operational and capital efficiency and accelerate our transformation to IDM 2.0.” “These actions, combined with our return to process technology leadership with the launch of Intel 18A next year, will strengthen our market position, improve profitability and create value for our shareholders.”
“Our second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our AI PC products, higher than normal expenses related to noncore businesses, and the impact of unused capacity,” Intel CFO David Zinsner said in a statement. “By executing spending reductions, we are taking proactive steps to improve our margins and strengthen our balance sheet. We expect these actions to meaningfully improve our liquidity and reduce our debt balance, while allowing us to make the right investments to create long-term value for our shareholders.”
Cost Savings Plan
Intel announced a series of initiatives to create a sustainable financial engine that accelerates profitable growth, further improves operational efficiency and agility, and creates the ability to make ongoing 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 sheet” view of the business and identifies significant opportunities to drive meaningful operational and cost efficiencies. These actions include structural and operational realignments across the company, workforce reductions, and reductions in operating expenses and capital expenditures of more than $10 billion compared to prior estimates through 2025.
As a result of these actions, Intel aims to have a clear view of a sustainable business model with the ongoing financial resources and liquidity necessary 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:
Reduce operating costs: The company plans to streamline operations and meaningfully reduce spending and headcount, reducing non-GAAP R&D and marketing, general and administrative (MG&A) to approximately $20 billion in 2024 and approximately $17.5 billion in 2025, with additional reductions in 2026. Intel expects to reduce its headcount by more than 15%, with the majority of the reductions expected to be completed by the end of 2024.
Reduce capital expenditures: As Intel’s historic journey to 5 nodes in four years draws to a close, the company is now shifting its focus to capital efficiency and aligning investment levels with market requirements. This will result in total capital expenditures in 2024 being reduced by more than 20% from its previous forecast, with total capital expenditures in 2024 expected to be between $25 billion and $27 billion. Intel expects net capital expenditures in 2024 to be between $11 billion and $13 billion. In 2025, it expects total capital expenditures to be between $20 billion and $23 billion, with net capital expenditures in the range of $12 billion and $14 billion.
Reduce selling costs: The company expects to realize $1 billion in non-variable selling expenses savings in 2025. Product mix will remain a headwind next year, contributing to a slight improvement in gross margin in 2025 compared to the previous year.
Maintaining key investments to execute strategy: The company continues to advance its path toward long-term innovation and leadership across process technologies and products, and the improved efficiencies from those actions are expected to further support execution. Intel also continues to invest in building a resilient and sustainable semiconductor supply chain in the United States and around the world.
in Memo to staff“This is painful news for me to share, and I know it’s even harder for you to read,” Gelsinger said. “This is an incredibly difficult day for Intel as we make the most significant change in the history of our company.”
He added: “Simply put, we need to align our cost structure to a new operating model and fundamentally change how we operate. Revenue has not grown as expected and we have not yet fully benefited from powerful trends like AI. Costs are too high and margins are too low. Bolder action is needed to address both, especially given our financial results and a more challenging outlook for the second half of 2024 than we previously anticipated.”
And Gelsinger said, “These decisions have challenged me to my core, and they have been the most difficult of my career. My commitment is to prioritize a culture of honesty, transparency and respect in the weeks and months ahead.”
Intel is taking additional action to suspend its dividend starting in Q4, recognizing the importance of prioritizing liquidity to support investments necessary to execute its strategy. The company reaffirms its long-term commitment to a competitive dividend as cash flow improves to higher, more sustainable levels.
Intel previously announced the implementation of an internal foundry operating model effective in Q1 2024, which establishes a foundry relationship between Intel’s product businesses (collectively known as CCG, DCAI, and NEX) and Intel’s foundry business (including Foundry Technology Development, Foundry Manufacturing and Supply Chain, and Foundry Services (formerly IFS)).
The foundry operating model is a key component of the company’s strategy and is designed to reshape its operational dynamics and drive greater transparency, accountability, and focus on cost and efficiency. The company also previously announced its intention to operate Altera as a standalone business beginning in the first quarter of 2024. Altera was previously included in DCAI’s segment results.
As a result of these changes, the Company revised its segment reporting in the first quarter of 2024 to align with this new operating model. All prior period segment data has been retroactively adjusted to reflect how the Company receives information internally and manages and monitors operating segment performance beginning in fiscal 2024. There are no changes to Intel’s consolidated financial statements for prior periods.
Intel Product Highlights
CCG: Intel is defining and leading the AI PC category, having shipped more than 15 million AI PCs since December 2023. That’s far more than all of Intel’s competitors combined, and it’s on track to ship more than 40 million AI PCs by year-end. The company’s next-generation AI CPU, Lunar Lake, achieved production availability in July 2024 and will begin shipping in Q3. Lunar Lake will power more than 80 new Copilot+ PCs from more than 20 OEMs.
DCI: With over 130 million Intel Xeon processors powering data centers worldwide today, Intel today at Computex demonstrated its next-generation Intel Xeon 6 processors with Efficient-cores (E-cores) codenamed Sierra Forest. This is the company’s first Intel 3 server product designed for dense, scale-out workloads. Intel expects Intel Xeon 6 processors with Performance-cores (P-cores) codenamed Granite Rapids to begin shipping in Q3 2024. The Intel Gaudy 3 AI accelerator is also expected to ship in Q3 and is expected to deliver roughly 2x the performance per dollar for both inference and training compared to the leading competitor.
Next: Intel announced a range of AI-optimized scale-out Ethernet solutions, including Intel AI Network Interface Cards and foundry chiplets that will be available next year. New infrastructure processing unit (IPU) adapters for enterprises are now broadly 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 expects will help drive the growth and profitability of AI data centers beyond 2025. Intel and others also announced Ultra Accelerator Link, a new industry standard dedicated to advancing high-speed, low-latency communications for scale-up AI system communications in the data center.
Intel Foundry Highlights
Intel is nearing completion of its promised 5-node in 4-year strategy, with Intel 18A expected to be manufacturing-ready by the end of this year, with production wafer volumes beginning in the first half of 2025. Intel shipped the 1.0 PDK for Intel 18A to foundry customers in July 2024. The company’s first two Intel 18A products, Panther Lake for clients (the first microprocessor to use RibbonFet, PowerVia, and advanced packaging) and Clearwater Forest for servers, are expected to ship in 2025.
During this quarter, Intel appointed industry veteran Kevin O’Buckley as head of Foundry Services. The company also recently appointed Naga Chandrasekaran as head of Intel Foundry Manufacturing and Supply Chain. Their leadership will support Intel’s continued development of the first system 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. The SCIP is an element of Intel’s Smart Capital strategy, a financing vehicle designed to accelerate the company’s strategy, including investing in its global manufacturing operations, and create financial flexibility to maintain a strong balance sheet.
