Intel shares plunged more than 25% in trading on Friday, its worst trading day in 40 years.
The company: Disappointing predictions The company said it would cut its workforce by 15%, deepening concerns about whether it can keep up with Taiwan’s TSMC and other chip makers.
“Intel’s problems are now approaching an existential threat in our view,” said Stacey Rasgon, an analyst at Bernstein.
The company said most of the job cuts will take place by the end of 2024 and are part of a $10 billion cost-cutting plan aimed at turning around the computer giant.
“Simply put, we must align our cost structures to a new operating model and fundamentally change the way we operate.” CEO Pat Gelsinger said in the memo: Thursday.
“Our revenues are not growing as expected, we are not yet fully benefiting from powerful trends like AI, our costs are too high and our profit margins are too low,” he said.
Intel fell 26% to close at $21.48 and is down 55% this year.
The California-based company reached its peak in the 1990s thanks to the success of its PCs, but since the early 2000s, Intel has faced stiffer competition for market share.
Intel said its revenue took a big hit, reporting a net loss of $1.6 billion in the second quarter, compared with a net profit of $1.5 billion in the same period last year.
Gelsinger said the losses were due to the company’s focus on Core Ulta, PC chips for AI processing, but suggested that this would balance out in the long term.
The company expects to cut $20 billion on an adjusted basis this year, with $17.5 billion in cuts in 2025 and further cuts in 2026.
Those measures, plus grants and contributions from partners, could help Intel add $40 billion in cash to its balance sheet by the end of 2025, Rasgon said.
Intel said in a statement that the cost cuts are aimed at improving the company’s liquidity and reducing its debt balance.
The cost-cutting plan was announced just months after President Joe Biden announced an agreement to provide Intel $8.5 billion in funding and $11 billion in loans for computer chip factories in Arizona, New Mexico, Oregon and Ohio through the CHIPS Act.
Intel is CHIPS Act’s Biggest Beneficiaries.
The company reported adjusted earnings per share of $0.02, below LSEG analysts’ expectations of $0.10.
The company also reported sales of $12.83 billion, down 1% from the previous year and below expectations of $12.94 billion.
“We have previously indicated that if investments to drive the AI PC division are successful, they will pressure margins in the near term,” Gelsinger said. “We believe that trade-off is worth it, and we see AI PCs growing from less than 10% of the market today to more than 50% by 2026.”
Intel has also been hit by other financial challenges, including the sudden relocation of Intel 4- and 3-chip wafers from a fab in Oregon to one in Ireland.
Chief Financial Officer Dave Zinser said while the move will result in higher costs, that will be balanced out in the long run and lead to higher gross margins.
Intel still controls the majority of the market, with its processors accounting for 71% of laptop central processing units. According to Statista – We are facing increasing price competition.
Intel’s Client Computing Group, which makes PC chips, reported revenue of $7.41 billion, up 9 percent and close to the $7.42 billion analysts expected based on Street accounts.
The company has high hopes for its AI chips, expecting to ship more than 40 million units per year.
Intel’s data center and AI division reported revenue of $3.05 billion, down 3% and below the $3.14 billion expected by Street accounts.
Intel expects third-quarter earnings to be relatively in line with expectations, with revenue in the range of $12.5 billion to $13.5 billion and a net loss of $0.03 per share.
Zinser said revenue from the data center division should increase in the second half of the year.
He said challenges include sluggish consumer and business spending and a big push into cloud-based servers for AI that has forced Intel to reduce its overall target market this year.
In the second quarter of June, Intel and asset manager Apollo Apollo will invest $11 billion for a 49% stake. Acquired by Intel in a joint venture that included a factory in Ireland.
That same month, Intel New Xeon 6 processors and Gaudi 3 AI accelerators.
Intel disclosed in May that the Commerce Department was revoking export licenses for chip shipments to a Chinese customer, likely Chinese tech company Huawei. According to a Reuters report:.
Intel later said it expects second-quarter revenue to remain in the range of $12.5 billion to $13.5 billion, but at the low end of that range.
