Tech giant Intel will be shedding more than 15% of its workforce—or over 19,000 employees—as part of a plan to cut $10 billion in costs after it failed to meet quarterly expectations.
Intel reported revenue of $12.83 billion on expectations of $12.94 billion in revenue in its second quarter 2024 earnings, reported CNBC. The company reported plunging from a net income of $1.48 billion in Q2 2023 to a net loss of $1.61 billion YOY.
Intel stock fell by 26% following the forecast and news of cuts, which Bloomberg reported was the biggest single-day drop in the last four decades of Intel history. A Morningstar analysis of Intel’s forecast for coming months concluded a “severe negative reaction was justified,” arguing the company is “doing the proper work” in its pivot to its Intel Foundry chipmaking business but nonetheless shedding customers in a number of markets.
In addition to layoffs, Intel plans to cut its gross capital expenditures by 20%. Intel will also suspend dividend payments to shareholders until “cash flows improve to sustainably higher levels,” the release noted. An internal Intel memo from CEO Pat Gelsinger mentioned the imminent creation of a “companywide enhanced retirement offering for eligible employees” and process for voluntary departures.
It’s not clear whether the cuts will affect Intel’s investments in New Mexico and other states where it is building or upgrading factories with $8.5 billion in federal CHIPS funding, the Rio Rancho Observer reported. An Intel spokesperson told IT Brew the company had no further comment beyond its earnings report and Gelsinger’s memo.
In a statement accompanying the earnings report, Intel Chief Financial Officer David Zinsner said three factors contributed to Intel’s rough quarter: a ramp-up in production of AI chips, “higher than typical charges related to non-core businesses,” and unused capacity.
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One of Intel’s big bets has been manufacturing neural processing units (NPUs) for so-called AI PCs, or devices that are able to run AI models locally rather than rely on cloud-based infrastructure. While some experts who previously spoke with IT Brew said enterprises will likely find productive uses for AI PCs, and Gartner projects the technology will be ubiquitous by the end of 2026, other experts have argued IT teams won’t procure AI PCs en masse until they have a more robust feature set.
While Apple has long transitioned from using Intel chips, another potential warning sign was Microsoft’s decision to ditch Intel in favor of Qualcomm chips in recent versions of its Surface laptops. Intel has planned to patch faulty microcode in some 13th- and 14th-generation chips that has caused crashing and premature degradation, and though it will extend warranties it hasn’t issued a recall.
As Tom’s Hardware observed, almost all of Intel’s core products business units remain profitable. Its client computing group (CCG), data center and AI, and network and edge businesses generated over $2.9 billion in operating income. Yet profits from the latter two businesses were slim, and an operating profit of $2.5 billion from the CCG division was practically wiped out elsewhere. Intel Foundry reported a net operating loss of $2.8 billion.
“Revenue is not where we want it to be,” Zinsner told Bloomberg in an interview. “Financials weren’t where we want them to be.”