Intel has announced it will lay off 15% of its workforce as part of a comprehensive $10 billion cost-reduction program. This decision affects approximately 18,795 of its 125,300 employees, based on figures from June 29.
The announcement coincides with Intel's disappointing second-quarter earnings, posting $12.8 billion in revenue—a 1% decline year-over-year. Non-GAAP earnings per share stood at 2 cents, and GAAP loss per share at 38 cents. Analysts had anticipated a profit of 10 cents per share on revenue of $12.94 billion. In contrast, rival Advanced Micro Devices reported a 9% increase in second-quarter revenue to $5.8 billion, exceeding expectations.
Starting in the fourth quarter of 2024, Intel will suspend its dividend, a move aimed at prioritizing liquidity and supporting strategic investments in technology and manufacturing. After hours, Intel's stock fell 16.9%, trading at $24.14, down from a previous close of $29.05.
CEO Pat Gelsinger acknowledged the financial performance as disappointing despite progress in key product and technology areas. He emphasized the need for decisive actions to enhance operational efficiency and profitability while accelerating Intel's IDM 2.0 transformation strategy.
CFO David Zinsner explained that second-quarter results were hindered by gross margin pressures due to accelerated AI PC product ramp-up and non-core business-related charges. By cutting spending, Intel aims to bolster its profits and strengthen its balance sheet, expecting these measures to significantly enhance liquidity and reduce debt.
Cost Reduction Initiatives
Intel's strategy includes several initiatives to build a sustainable financial foundation while promoting profitable growth, operational efficiency, and strategic investments in technology leadership. Notably, Intel has separated financial reporting for Intel Products and Intel Foundry, revealing opportunities for improved operational and cost efficiencies. Key aspects of this transformational plan include:
1. Reducing Operating Expenses: Intel aims to streamline operations by decreasing headcount and cutting non-GAAP R&D and marketing expenses to approximately $20 billion in 2024 and $17.5 billion in 2025, with further reductions expected in 2026.
2. Reducing Capital Expenditures: Following the conclusion of its five-nodes-in-four-years initiative, Intel plans to decrease gross capital expenditures by over 20% in 2024 to between $25 billion and $27 billion, and net capital spending will range from $11 billion to $13 billion.
3. Reducing Cost of Sales: Intel anticipates generating $1 billion in savings from non-variable costs in 2025, despite product mix challenges affecting gross margin.
4. Sustaining Core Investments: Intel will continue investing in long-term innovations to maintain leadership in process technology while building a robust semiconductor supply chain.
In a memo to employees, Gelsinger expressed the difficulty of these decisions, emphasizing the need to align cost structures with new operational models. He acknowledged the company’s struggle for revenue growth and the need for more assertive measures as financial results and future forecasts become increasingly challenging.
Intel’s commitment to a competitive dividend remains intact for the long term, contingent on improved cash flows. The company has recently implemented an internal foundry model to enhance transparency and efficiency in operations, which took effect in the first quarter of 2024.
Intel Products Highlights
In its efforts to lead in the AI PC segment, Intel has shipped over 15 million AI PCs since December 2023, with projections to exceed 40 million units by year-end. The company’s next-generation AI CPU, Lunar Lake, achieved early production release in July 2024 and is set to power over 80 new Copilot+ PCs.
In the data center space, Intel currently powers over 130 million Xeon processors globally and has introduced its next-generation Intel Xeon 6 processor, designed for high-density workloads. The anticipated launch of the Intel Gaudi 3 AI accelerator this quarter is also expected to enhance performance significantly.
Intel Foundry Highlights
Intel is on track with its five-nodes-in-four-years strategy, with Intel 18A nearing production readiness by early 2025. In July 2024, Intel released its 1.0 PDK for Intel 18A and plans to launch the first microprocessors utilizing advanced technologies in 2025.
Additionally, Intel has appointed industry leaders to strengthen its Foundry Services and Manufacturing, further supporting its ambition to establish a premier foundry for the AI era. The recent Semiconductor Co-Investment Program (SCIP) agreement with Apollo is part of Intel’s strategy to accelerate global manufacturing investments while maintaining a strong financial foundation.
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