Intel announced a 15% workforce reduction, around 17,500 jobs, and will suspend dividends starting Q4 to focus on manufacturing.
It also projects Q3 revenue below estimates due to reduced spending on data center semiconductors and lagging in AI chip advancements.
Intel shares dropped 20% in extended trade, potentially losing over $24 billion in value, following a 7% decline on Thursday.
The results had little impact on the overall chip industry.
AI leaders Nvidia and AMD rose after hours, highlighting their advantage in the AI boom compared to Intel’s relative weakness.
“I need less people at headquarters, more people in the field, supporting customers,” CEO Pat Gelsinger told Reuters in an interview, talking about the job cuts. On the dividend suspension, he said: “Our objective is to … pay a competitive dividend over time, but right now, focusing on the balance sheet, deleveraging.”
Intel, with 116,500 employees as of June 29, expects most job cuts by late 2024. Additionally, it declared a 12.5-cent dividend in April.
Intel is revamping, concentrating on advanced AI processors and expanding manufacturing to regain its technological edge from TSMC.
Under Gelsinger, Intel’s push to energize its foundry business increased costs and pressured margins; thus, the company plans to cut costs.
On Thursday, Intel announced it will cut operating expenses and capital expenditure by over $10 billion in 2025, exceeding initial plans.
“A $10 billion cost reduction plan shows that management is willing to take strong and drastic measures to right the ship and fix problems. But we are all asking, ‘is it enough’ and is it a bit of a late reaction considering that CEO Gelsinger has been at the helm for over three years?” said Michael Schulman, chief investment officer of Running Point Capital.
As of June 29, the company had $11.29 billion in cash and cash equivalents, while current liabilities totaled $32 billion.
Consequently, Intel’s lag in AI chips has caused its shares to drop over 40% this year.
For Q3, Intel expects $12.5-$13.5 billion in revenue, below the $14.35 billion estimate, with a 38% gross margin forecast.
Intel’s Turnaround Challenge: Declining Data Center Sales and High AI Chip Costs
Analysts expect Intel’s foundry turnaround to take years, predicting TSMC will stay ahead, despite Intel’s increased AI chip production.
The PC chip industry expanded 9% in the April-June period.
“The irony is that … their first AI PC-focused processors are selling much better than expected. The problem is that the costs for those chips are much higher, meaning their profitability on them isn’t great,” said Bob O’Donnell, chief analyst at TECHnalysis Research.
“In addition, the data center decline reinforces the fact that while companies are buying lots of infrastructure for AI, the vast majority is for non-Intel GPUs,” he said, referring to graphic processing units like those sold by Nvidia.
Intel’s data center business fell 3% during the quarter.
CFO David Zinsner noted a decline in consumer and enterprise spending this quarter, particularly in China, following the earnings call.
Intel’s Q2 China sales dropped due to May’s revoked export licenses, which Washington imposed, affecting the chipmaker’s business.
Intel is also reducing investments.
It anticipates reducing capital expenses by 17% to $21.5 billion in 2025, with costs remaining stable in 2024.
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