Intel to cull 15,000 jobs as it targets cost cuts of $10bn

• Intel is aiming to cut operating and capital costs by $10bn in 2025
• To do so, it is axing 15,000 jobs, 15% of its total workforce 
• The news comes as the chip giant reports major Q2 operating losses
• Shareholders are not happy 

Intel is to cut 15,000 jobs, about 15% of its total workforce, as part of a plan to reduce its operating and capital costs by $10bn in 2025, with most of the redundancies set to take place before the end of this year.

The news came as the chip giant reported second quarter revenues of $12.8bn, down by 1% year on year, and an operating loss of almost $2bn, almost double the size of the loss reported in the same quarter a year ago.

“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones. Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM [integrated device manufacturing] 2.0 transformation,” stated CEO Pat Gelsinger. “These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value,” he added.

David Zinsner, Intel’s CFO, added: “By implementing our spending reductions, we are taking proactive steps to improve our profits and strengthen our balance sheet. We expect these actions to meaningfully improve liquidity and reduce our debt balance while enabling us to make the right investments to drive long-term value for shareholders.” 

The news shocked investors: Intel’s share price slumped on the Nasdaq stock exchange by a massive 27.4% in early trading on Friday to $21.08, giving the company a market valuation of $97.6bn. The chip firm’s share price is now 56% lower than at the start of the year. 

By contrast, rival chip vendor Nvidia’s share price is up by 114% this year and currently trades at $103.90, giving it an eye-watering valuation of $2.72tn, though it should be noted that Intel’s woes weighed slightly on Nvidia’s stock in Friday trading too, taking it down by almost 5%. 

In a letter to Intel employees, Gelsinger noted that the news that 15,000 staff are to be shown the exit door “is painful news for me to share. I know it will be even more difficult for you to read. This is an incredibly hard day for Intel as we are making some of the most consequential changes in our company’s history… Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate. Our revenues have not grown as expected – and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low. We need bolder actions to address both – particularly given our financial results and outlook for the second half of 2024, which is tougher than previously expected. These decisions have challenged me to my core, and this is the hardest thing I’ve done in my career. My pledge to you is that we will prioritise a culture of honesty, transparency and respect in the weeks and months to come.”

He added that “since introducing our new operating model, we have taken a clean-sheet view of the business and assessed ourselves against benchmarks for high-performing foundries, fabless product companies and corporate functions. This work made it clear our cost structure is not competitive. For example, our annual revenue in 2020 was about $24bn higher than it was last year, yet our current workforce is actually 10% larger now than it was then. There are a lot of reasons for this, but it’s not a sustainable path forward. Beyond our costs, we need to change the way we operate… There’s too much complexity, so we need to both automate and simplify processes. It takes too long for decisions to be made, so we need to eliminate bureaucracy. And there’s too much inefficiency in the system, so we need to expedite workflows.” 

In the coming months, in addition to reducing its headcount, Intel will simplify its product portfolio, reduce capital expenditures and suspend dividend payments to shareholders (hence the massive share price drop), though the CEO says its “IDM2.0 strategy is unchanged. Having fought hard to reestablish our innovation engine, we will maintain the key investments in our process technology and core product leadership,” stated Gelsinger. 

“We must continue to drive our IDM 2.0 strategy, which remains the same: re-establish process technology leadership; invest in at-scale, globally resilient supply chain by expanding manufacturing capacity in the U.S. and EU; become a world-class, leading-edge foundry for internal and external customers; rebuild product portfolio leadership; and deliver AI Everywhere. Over the past few years, we have rebuilt a sustainable innovation engine that is largely in place and on track. It’s now time to focus on building the sustainable financial engine needed to drive our performance. We must improve our execution, adapt to new market realities and operate as a more agile company. That’s the spirit of the actions we are taking – knowing that the choices we make today, as difficult as they are, will strengthen our ability to serve our customers and grow our business for years to come.”

The CEO concluded: “As we take these next steps in our journey, let’s not forget that there has never been a greater need for what we do. The world will increasingly run on silicon – and the world needs a healthy and vibrant Intel. That’s why the work we are doing is so consequential. Not only are we remaking a great company, but we are also creating technology and manufacturing capabilities that will reshape the world for decades to come. And this is something we should never lose sight of as we push forward in pursuit of our goals.”

- Ray Le Maistre, Editorial Director, TelecomTV