Intel Slashes 17,500 Jobs as Profits Plunge 85%
As part of its $10 billion cost-cutting initiative, Intel has announced plans to lay off 17,500 employees. This move follows a dramatic 85% drop in the company’s second-quarter profits, highlighting the chipmaker’s ongoing struggle to remain competitive in the AI era. Intel also forecasts third-quarter revenues will fall short of market expectations, as traditional data center semiconductor spending declines and its AI chips lag behind competitors.
In after-hours trading on Thursday, Intel’s stock plummeted by 20%, leading to a market value loss exceeding $24 billion. In contrast, shares of competitors AMD and NVIDIA saw slight gains. Intel’s stock has dropped more than 42% this year, making it the second-worst performer in the Philadelphia Semiconductor Index.
To address mounting competition from AMD and NVIDIA in the AI chip sector, Intel is accelerating the development of its next-generation Core Ultra PC chips designed for AI workloads. Additionally, the company is investing heavily in expanding its manufacturing capabilities, putting significant pressure on its profitability.
1. Net Profit Plummets by 85%
For the second quarter ending June 29, Intel reported a 1% decrease in revenue to $12.8 billion, with earnings per share (EPS) of $0.02 (excluding certain items). Net profit fell dramatically by 85% to $83 million. Analysts had predicted an EPS of $0.10 and revenue of $12.95 billion. Intel’s overall revenue for 2024 is expected to slightly increase compared to 2023 but remains over $20 billion below its peak in 2021.
Intel's wafer fabrication segment saw a 4% year-over-year revenue increase to $4.32 billion, though it faced a $2.8 billion operating loss due to high factory costs. The PC chip sector grew 9%, with revenue reaching $7.41 billion. However, the once-lucrative data center division experienced a 3% revenue decline to $3.05 billion, missing the StreetAccount analyst average estimate of $3.14 billion. The division has yet to match NVIDIA's market share in AI accelerators.
Intel's gross margin for the second quarter was 35.4%, with a projected 38% for the third quarter, significantly below the market expectation of 45.7%. During its peak, Intel's gross margin regularly exceeded 60%.
The company forecasts third-quarter revenues between $12.5 billion and $13.5 billion, with an expected EPS loss of $0.03, while analysts had anticipated a profit of $0.30. Intel also announced it would suspend shareholder dividends starting in Q4 until cash flow improves to sustainable levels. The company has paid dividends since 1992, with a quarterly dividend of $0.125 announced in April.
As of June 29, Intel had $11.29 billion in cash and cash equivalents, with current liabilities of approximately $32 billion. The recent revocation of export licenses to a vendor and other U.S. export controls will continue to impact revenue through Q3, particularly affecting spending in the Chinese market.
2. $10 Billion Cost-Cutting Plan and 17,500 Job Cuts
Intel aims to enhance efficiency and market competitiveness with its $10 billion cost-cutting plan by 2025, which includes reducing its workforce by approximately 17,500 employees, or 15% of its total staff of 116,500 as of June 29. CEO Pat Gelsinger stated that staff reductions are necessary to streamline operations and support customer needs, with most layoffs expected to be completed by year-end. This move is also intended to eliminate bureaucracy and speed up decision-making.
Despite Gelsinger's ambitious spending plan to restore Intel’s industry leadership, the company is struggling to improve its products and technology quickly enough to retain customers. This situation underscores Intel’s dramatic decline from its long-standing dominance in the semiconductor industry, necessitating cost reductions to fund future growth plans.
Gelsinger commented, “Our costs are too high, and our margins are too low. We need to take bolder actions to address these issues—especially given our financial performance and the challenging outlook for the second half of 2024.”
However, Gelsinger remains optimistic that investments in AI PC chips and manufacturing capabilities will yield long-term benefits.
3. Continued Investment in Wafer Fabrication, with More Than 20% Spending Cuts
Intel is the only major U.S. chipmaker operating its own wafer fabs. The company will receive up to $8.5 billion in grants and $11 billion in loans from the U.S. government under the CHIPS and Science Act for advanced semiconductor production. According to the U.S. Department of Commerce, Intel’s investment in its fabs will exceed $100 billion, covering chip manufacturing and packaging facilities in Arizona, Ohio, New Mexico, and Oregon.
Competitors focusing on AI have captured some of Intel’s customers. NVIDIA’s current quarterly sales are more than twice that of its former rival, while AMD’s valuation exceeds $100 billion. TSMC is widely regarded as the leading wafer manufacturer in the industry.
Despite these challenges, Intel is working to return to profitability by focusing on advanced AI chips and expanding its outsourced manufacturing capabilities to regain the technology edge lost to TSMC. Intel hopes to shift more chip production back to its own upgraded facilities over time and accelerate AI PC chip improvements. However, these investments are currently squeezing margins. Analysts believe it will take years for Intel to turn around its wafer fabrication business and expect TSMC to maintain its lead for the foreseeable future, even as Intel ramps up production of AI PC chips.
Intel plans to cut its spending on new wafer fabs and equipment by more than 20% in 2024, with a budget of $25 billion to $27 billion. Spending in 2025 is projected to range from $20 billion to $23 billion, representing a 17% year-over-year reduction.
