US-based chipmaker Intel is set to cut 15 000 jobs, or 15% of its workforce, as it plans to reduce costs by $10 billion by 2025.
This was confirmed by CEO Pat Gelsinger in a memo to Intel employees yesterday.
“We plan to deliver $10 billion in cost savings in 2025, and this includes reducing our head count by roughly 15 000 roles, or 15% of our workforce. The majority of these actions will be completed by the end of this year,” he says.
The announcement coincides with Intel’s financial results, which saw its revenue dwindling by 1% year-on-year.
The Verge reports that the company currently employs over 125 000 workers, meaning the job cuts may impact as many as 19 000 employees.
According to Statista, Intel processors made up 71% of laptop central processing unit (CPU) test benchmark results in the third quarter of 2024, up from the higher share seen in previous quarters, but lower compared to the last quarter. AMD processors accounted for 21% of laptop CPUs detected via the tests.
Industry-wide challenge
Organisations in the tech sector have been announcing large-scale job cuts since the last quarter of 2022. These include multinationals Amazon, Google, Meta, Google parent company Alphabet, Salesforce, X (formerly Twitter), Spotify, IBM, SAP, Microsoft and Cisco.
Many of these tech companies benefitted from increased demand for their services during the pandemic lockdowns, but as customer behaviour returned to pre-pandemic times, some witnessed declining demand for services and dropping share prices.
Retrenchments are ongoing in 2024, with several companies across the globe introducing a second or third round of terminations, according to layoffs tracker Layoffs.fyi.
Firms that have curtailed a significant number of employees this year so far include Tesla, Amazon, Google, TikTok, Snap and Microsoft, it says.
Adds Gelsinger: “This 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.”
He notes the company’s revenue has not grown as expected and the firm is yet to fully benefit from powerful trends, like artificial intelligence (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.”
In its second quarter 2024 financial results published yesterday, Intel posted revenue of $12.8 billion, down 1% year-over-year.
Commenting on the results, Gelsinger says: “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 2.0 transformation.
“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.”
Streamlining operations
“Second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our AI PC product, higher than typical charges related to non-core businesses and the impact from unused capacity,” says David Zinsner, Intel CFO.
“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 company says it will streamline its operations and meaningfully cut spending and headcount, reducing non-GAAP R&D and marketing, general and administrative to approximately $20 billion in 2024 and approximately $17.5 billion in 2025, with further reductions expected in 2026.
Intel expects to generate $1 billion in savings in non-variable cost of sales in 2025. Product mix will continue to be a headwind next year, contributing to modest year-on-year improvements to 2025's gross margin, it notes.
The chipmaker is taking the added step of suspending the dividend, starting in the fourth quarter, recognising the importance of prioritising liquidity to support the investments needed to execute its strategy.
It reiterates its long-term commitment to a competitive dividend, as cash flows improve to sustainably higher levels.
Share