Intel to lay off 15% of its workforce, cut $20 billion in costs

Intel has announced a significant reduction in its workforce, with plans to cut 18,000 jobs, representing 15 per cent of its total employees. This move comes as the company attempts to realign its business strategy to stay competitive against industry leaders like NVIDIA and AMD.

Intel’s CEO, Pat Gelsinger, communicated this decision in a memo to staff, revealing a broader plan to save $20 billion by 2025.

The company’s financial performance has not met expectations, particularly in the face of powerful trends like artificial intelligence, which Intel has yet to fully capitalise on.

Intel’s financial challenges
The decision to cut jobs follows a disappointing financial quarter for Intel, marked by a significant loss and a decline in revenue. For the April-June period, Intel reported a loss of $1.6 billion, a stark contrast to the previous year’s profit of $1.5 billion.

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Revenue slightly dipped from $12.9 billion to $12.8 billion, falling short of analysts’ expectations. These financial results have led Intel to also suspend its stock dividend as part of its cost-cutting measures. The company’s stock dropped by 19 per cent in after-hours trading, potentially erasing $24 billion of its market value.

Making some strategic adjustments
To mitigate the financial downturn, Intel plans to introduce an enhanced retirement offering for eligible employees and a voluntary departure program. The majority of the layoffs are expected to be completed within the year.

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Gelsinger emphasised the need to align Intel’s cost structure with a new operating model to improve margins and better position the company for future growth, especially as it faces a challenging outlook for the second half of 2024.

Future prospects and market position
Despite current financial setbacks, Intel is focusing on long-term growth in the AI and chip fabrication markets. Gelsinger has noted that while investments in the AI PC market may pressure profit margins in the short term, they are anticipated to yield significant benefits by 2026, with AI PCs expected to represent more than 50 per cent of the market.

Unlike many competitors, Intel manufactures its chips and is working to expand its semiconductor foundry business in the US, competing with major players like Taiwan Semiconductor Manufacturing Co. (TSMC).

Intel has also been a key beneficiary of the 2022 CHIPS and Science Act, which aims to boost chip manufacturing in the US. President Joe Biden has highlighted Intel’s role in this initiative, celebrating agreements to provide substantial funding and loans for new chip plants across the country.

This investment is seen as crucial for strengthening the US economy and reducing dependence on foreign-made chips. As Intel navigates these changes, the company faces the challenge of building specialized facilities and upskilling the local workforce, underscoring that these transformations will take time to realise fully.

Note: The story was updated to revise the number of people being affected by the layoffs. Previous reports claimed that the number of people being laid off would be around 15,000. However, more recent reports claim that about 15% of Intel’s workforce, or about 18,000 people would be let go.