Chipmaker Intel is cutting 15% of its vast workforce, or about 15,000 jobs, as it tries to restructure its business to compete with more successful rivals such as Nvidia and AMD.
Intel CEO Pat Gelsinger said in a memo to employees on Thursday that the company plans to cut costs by $10 billion in 2025. “Simply put, we must align our cost structure to our new business model and fundamentally change how we run our business,” he wrote in the memo. Memo published To Intel’s website: “Our revenues are not growing as we hoped. We have not yet fully benefited from powerful trends like AI. Our costs are too high and our profit margins are too low.”
The job cuts come on the heels of disappointing quarterly results and guidance for the iconic chipmaker, which was founded in 1968 at the start of the PC revolution.
Gelsinger wrote that Intel plans to announce an “enhanced severance package” next week for eligible employees and offer a voluntary separation application program. Intel will have 124,800 employees at the end of 2023, according to regulatory filings.
“These decisions drive me deep into my heart and are the most difficult of my career,” he said. The majority of the cuts are expected to be completed by the end of the year.
The Santa Clara, California-based company is also suspending its stock dividend as part of a broader plan to cut costs.
Intel reported a slight drop in second-quarter revenue and a loss and forecast third-quarter earnings that would fall short of Wall Street expectations.
The company reported a loss of $1.6 billion, or 38 cents a share, for the April-June quarter, down from a profit of $1.5 billion, or 35 cents a share, a year earlier. Adjusted earnings, excluding special items, were 2 cents a share.
Revenue fell 1% to $12.8 billion from $12.9 billion.
Analysts on average were expecting profit of 10 cents per share and revenue of $12.9 billion, according to a FactSet survey.
“Intel’s announced plans for significant cost-cutting, including job cuts, may improve its short-term financial position, but this alone won’t be enough to redefine the company’s position in the evolving chip market,” said eMarketer analyst Jacob Born. “The company is at a critical crossroads as it seeks to capitalize on investments in domestic U.S. manufacturing and growing global demand for AI chips to establish itself in chip manufacturing.”
With Gelsinger’s lobbying help, Intel has been a big beneficiary of the Chip Science Act of 2022, which the Biden administration helped push through Congress amid growing fears that losing access to Asian-made chips in the wake of the pandemic could tip the U.S. economy into recession.
President Joe Biden in March celebrated the agreement to provide up to $8.5 billion in direct funding to Intel and $11 billion in loans to computer chip factories across the country, praising the investment in the political battleground state of Arizona and calling it a way to “give America its future back.” At the time, Gelsinger called the CHIPS Act “the most significant industrial policy legislation since World War II.”
Biden praised Intel as a job creator with plans to open a new factory near Columbus, Ohio, in September 2022. The president praised Intel’s plans to “build the workforce of the future” with the $20 billion project, which he said will create 7,000 construction jobs and 3,000 full-time jobs with an average annual salary of $135,000.
Shares plunged more than 20 percent to $23.82 in after-hours trading, suggesting Intel’s market capitalization could drop by about $24 billion when the market opens on Friday.
