Intel has announced a significant restructuring plan, which includes laying off over 15,000 employees—more than 15% of its workforce. This decision aims to reduce costs by $10 billion by 2025, following disappointing financial results and a challenging outlook for the second half of 2024.
Intel reported a 1% decline in second-quarter revenues compared to the same period last year, primarily due to gross margin pressures related to its AI PC products. Despite some profitable products, the company's Foundry business has incurred substantial losses—$7 billion in 2023 and another $2.8 billion this quarter—due to heavy investments in new factories and advanced technologies like extreme ultraviolet (EUV) lithography.
Intel has struggled to capitalize on the AI boom, unlike competitors such as Nvidia. CEO Pat Gelsinger highlighted that while Intel revolutionized the CPU chip market 25 years ago, it has been slow to adapt to newer computing trends. The company’s annual revenues dropped by $24 billion from 2020 to 2023, despite a 10% workforce increase. In contrast, other chipmakers have seen significant revenue and valuation increases during the AI surge.
To address its financial challenges, Intel is implementing aggressive cost-cutting measures. These include reducing R&D and marketing expenses by billions annually through 2026 and cutting capital expenditures by more than 20% this year. Intel will also eliminate non-essential work and scrutinize all active projects to ensure efficient spending.
Starting in the fourth quarter of 2024, Intel will suspend its shareholder dividend. The company will also offer a voluntary departure program and enhanced retirement packages for eligible employees, aiming to reduce headcount without solely relying on involuntary layoffs.
Despite the current challenges, Intel is committed to innovation. The company will receive up to $8.5 billion from the US government's CHIPS Act to support domestic semiconductor manufacturing. Intel's upcoming AI laptop chip, Lunar Lake, is expected to see significant production increases next year. However, it will rely on wafers produced by TSMC. The follow-up product, Panther Lake, will be internally sourced and is anticipated to have a much-improved cost structure by 2026.
In the server chip market, Intel's Granite Rapids Xeon processors are performing well, but the company faces stiff competition from AI chipmakers. Gelsinger acknowledged that Intel is "fighting to win sockets" in this competitive market.