Chipmaker Intel Corp. is set to downsize its workforce by 15 percent, or 15,000 roles, in an effort to reduce costs after reporting a loss in second-quarter earnings. The company’s second-quarter revenue dropped from $12.9 billion in 2023 to $12.8 billion this year, along with a net loss of $1.6 billion, or $0.38 per share.
Intel CEO Pat Gelsinger addressed the job cuts in a memo to staff, stating that it is part of the company’s $10 billion cost savings plan for 2025. The majority of the layoffs are expected to be completed by the end of the year. With 124,800 employees globally as of December 2023, Intel is making significant changes to its operating model to align with the new cost structure.
Gelsinger acknowledged that the financial results and outlook for the second quarter did not meet expectations. He highlighted the fact that Intel has not fully benefited from powerful trends like artificial intelligence (AI) and that costs are too high while margins are too low.
To address these issues, Intel plans to eliminate overlapping areas of responsibility and non-essential work as part of its cost savings plan. The company will also reduce its capital expenditures by more than 20 percent and suspend its stock dividend starting in the fourth quarter of the year.
Intel expects revenue of $12.5 billion to $13.5 billion for the third quarter. During a post-earnings call, Intel CFO David Zinsner stated that the chipmaker anticipates a gross margin of 38 percent. Zinsner attributed the second-quarter results to gross margin headwinds from the accelerated ramp of Intel’s AI laptop product and higher-than-typical charges related to noncore businesses and unused capacity.
In a move to support domestic semiconductor manufacturing, the Biden administration proposed granting Intel up to $8.5 billion in grants and $11 billion in loans to expand its production facilities in Arizona, New Mexico, Ohio, and Oregon. This funding, which stems from the CHIPS and Science Act of 2022, is the largest investment ever made by the government in U.S. semiconductor manufacturing.
While the downsizing of Intel’s workforce is undoubtedly a challenging decision, the company is taking proactive steps to improve its profits and strengthen its balance sheet. By aligning its operating model with the new cost structure and focusing on areas of growth like AI, Intel aims to position itself for future success in the highly competitive semiconductor industry.
