Intel announced on Thursday that it will reduce its workforce by over 15%, affecting approximately 17,500 employees, and suspend its dividend starting in the fourth quarter as part of a major turnaround effort focused on its struggling manufacturing business.
The company also projected third-quarter revenue to fall short of market expectations, impacted by decreased spending on traditional data center semiconductors and a slower-than-expected advancement in AI chips, where it trails competitors.
Following the announcement, Intel’s shares dropped 20% in after-hours trading, reflecting a potential loss of over $24 billion in market value. The stock had already fallen 7% earlier in the day, in line with a broader decline in U.S. chip stocks after a conservative forecast from Arm Holdings.
Despite the drop in Intel’s stock, other chipmakers like Nvidia and AMD saw slight increases in their share prices, highlighting their stronger positions in the burgeoning AI market.
Intel CEO Pat Gelsinger stated that the workforce reductions aim to shift resources to areas directly supporting customers, and that the suspension of the dividend is a strategic move to focus on improving the company’s balance sheet and reducing debt.
The job cuts are expected to be largely completed by the end of 2024. Intel, which had 116,500 employees as of June 29, had previously declared a quarterly dividend of 12.5 cents per share.
The company is undergoing a significant restructuring plan to enhance its AI capabilities and expand its contract manufacturing services, striving to reclaim its technological edge from Taiwan’s TSMC, the largest contract chipmaker globally.
Intel’s increased investment in its foundry business has raised costs and pressured profit margins, leading to additional cost-cutting measures. The company announced it would reduce operating expenses and capital expenditures by over $10 billion in 2025, exceeding initial plans.
Michael Schulman, Chief Investment Officer at Running Point Capital, noted that while the cost reduction plan is a strong step, there are concerns about whether it is sufficient and timely given Gelsinger’s tenure of over three years.
As of June 29, Intel reported cash and equivalents of $11.29 billion against total current liabilities of around $32 billion. The company’s stock has dropped more than 40% this year due to its lag in AI chip development.
For the third quarter, Intel forecasts revenue between $12.5 billion and $13.5 billion, falling short of analysts’ average estimate of $14.35 billion. The company also expects an adjusted gross margin of 38%, below the market expectation of 45.7%.
Intel’s plan to revamp its foundry business is anticipated to take years, with TSMC expected to maintain its lead in the AI chip market. Despite growth in PC chip sales, which increased 9% in the April-June quarter, profitability remains challenged due to higher production costs.
Intel’s data center business saw a 3% decline in the quarter. CFO David Zinsner mentioned expectations of weaker consumer and enterprise spending, especially in China, exacerbated by the revocation of export licenses affecting Intel’s business in the region.
The company plans to cut capital expenses by 17% in 2025 to $21.5 billion and expects these costs to remain stable in 2024.
