Around 15,000 jobs – about 15 percent of the workforce – are set to be eliminated, as Intel CEO Pat Gelsinger wrote to employees. Overall, he aims to save more than ten billion dollars by next year.
Intel’s press release even hinted at potentially higher job losses. This is because it mentioned the reduction of “more than” 15 percent – with the number of employees stated as 116,500 at Intel and over 125,000 in the group including subsidiaries.
Chip Manufacturer for Others
Gelsinger’s strategy for Intel’s survival includes becoming a more significant contract manufacturer for other chip developers. The company aims to master state-of-the-art production processes to compete against established producers like TSMC from Taiwan. At the same time, Gelsinger skillfully positioned Intel as a key element of plans to bring more chip production from Asia back to the West.
Part of the plans also includes building a plant in Magdeburg costing around 30 billion euros, where the latest production methods are expected to be employed. Intel is still awaiting approvals for, among other things, the billion-euro subsidies intended to cushion the costs. The first groundbreaking is currently slated for the end of the year – with production beginning as early as 2027.
Could the austerity measures impact plans for Germany?
The struggling semiconductor pioneer Intel is resorting to drastic job cuts to quickly reduce costs. Around 15,000 jobs – about 15 percent of the workforce – are set to be eliminated, as Intel CEO Pat Gelsinger wrote to employees. He aims to save more than ten billion dollars by next year.
On Wall Street, Intel’s stock plummeted nearly 30 percent to $20.51 at the start of trading on Friday, marking the lowest level since 2012. According to data from financial data provider Bloomberg, it was the worst drop for the stock in over 40 years. This year, Intel’s stock has lost nearly 60 percent in value.
This could be an ominous sign for the planned new chip factory in Magdeburg. While Gelsinger emphasized that Intel intends to stick with its “IDM 2.0” strategy (Integrated Device Manufacturing 2.0) to expand manufacturing capacity, he did not comment on specific investment plans in Germany, France, and Italy – and simultaneously announced that Intel would adjust its investments more closely to demand.
State government: According to Intel, nothing is changing
However, the state government in Magdeburg expressed confidence. “According to Intel, there is nothing changing in the planning for the Magdeburg site,” said Matthias Schuppe, government spokesman for Minister-President Reiner Haseloff (CDU), to the Deutsche Presse-Agentur.
The job cuts could even be higher than announced by Gelsinger in his email to employees: The press release mentioned the reduction of “more than” 15 percent – with the number of employees indicated as 116,500 at Intel and over 125,000 in the group including subsidiaries.
Chip Manufacturer for Others
Gelsinger’s strategy for Intel’s survival includes becoming a more significant contract manufacturer for other chip developers. The company aims to master state-of-the-art production processes to compete against established producers like TSMC (Taiwan Semiconductor Manufacturing) from Taiwan. At the same time, Gelsinger skillfully positioned Intel as a key element of plans to bring more chip production from Asia back to the West.
Part of these plans also includes building a plant in Magdeburg costing around 30 billion euros, where the latest production methods are expected to be implemented. Intel is still awaiting approvals for, among other things, the billion-euro subsidies intended to cushion the costs. The first groundbreaking is currently slated for the end of the year – with production beginning as early as 2027.
Could the austerity measures impact plans for Germany?
Gelsinger emphasized that the contract manufacturer strategy fundamentally remains. However, until there are firm orders, Intel will be cautious about building up excessive capacity. He stated that investment plans have also been adjusted to the now-expected market development, without providing further details. The company also aims to harvest the fruits of high investments more quickly. Intel plans to build new factories in the USA and aims to secure billions in stimuli.
Intel once dominated the chip industry but later fell behind. A critical moment was the lost battle for a place in today’s ubiquitous smartphones. Intel hoped to transfer its strength in the PC business to mobile devices – but more energy-efficient processors with architectures from British chip designer Arm prevailed in the mobile phone sector. Thus, smartphone chips do not come from Intel but from competitors like QUALCOMM or TSMC.
Pressure in PC Processors and AI
Meanwhile, Intel must also be concerned about its position in the PC market. Apple converted its entire range of Mac computers to Arm chips of its own design. One result was significantly longer battery life. In the summer, Microsoft also initially relied on Arm-architecture chips like Qualcomm’s Snapdragon processor for new Windows PCs with AI features. Computers with Intel processors are expected to follow – but they must first hit the market.
Meanwhile, Intel has watched from the sidelines as the once much smaller competitor NVIDIA became the hottest name in the industry thanks to chip systems for training artificial intelligence. While Intel is also trying to enter this business, it remains far behind Nvidia.
This is also reflected in the stock price. While NVIDIA’s market value has skyrocketed by around 600 percent to $2.5 trillion since the start of the AI hype around the turn of 2022/2023, Intel’s value has decreased by just over one-fifth to $90 billion.
“Costs too high, margins too low.”
Intel’s cost-cutting program also includes temporarily suspending dividends starting in the fourth quarter. Capital expenditures are now set to be 20 percent lower than originally targeted.
Gelsinger sounded quite dramatic in his email to employees. Intel’s cost structure is “not competitive,” he wrote among other things. “Our costs are too high, our margins are too low.” Revenue was $24 billion lower last year than in 2020 – but the number of employees was ten percent higher. Decisions took too long, and there are too many friction losses in the system.
In the last quarter, Intel recorded a loss of over $1.6 billion after a profit of $1.48 billion a year earlier. Revenue decreased by one percent year-on-year to $12.8 billion (11.9 billion euros) and fell short of analyst expectations.
Investors are losing confidence
Gelsinger called the business figures for the last quarter “disappointing.” And the situation in the second half of the year is expected to be more difficult than previously anticipated. Intel’s CEO had often reassured investors about the second half of the year, in which improvements were expected.
Intel stock sees worst drop since 2000
“Simply put, we need to align our cost structure to our new operating model and fundamentally change the way we work,” Gelsinger noted in an interview. As part of the cost-cutting program, the company will also suspend its dividend starting in the fourth quarter. “In response, we are taking aggressive measures to significantly reduce expenses,” commented CFO David Zinsner during the conference call. He added, “While these measures are difficult, they will help streamline the organization to improve productivity and make better decisions faster.” Capital expenditures are now set to be 20 percent lower than initially targeted. “The company reaffirms its long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels,” Intel emphasized in its earnings announcement.
Investors reacted with shock to the massive cost-cutting announcements: On NASDAQ, Intel’s stock ultimately plunged by 26.06 percent to $21.48 on Friday.
Such a drop corresponds to the worst decline for Intel since September 2000, when the stock slipped by 22 percent.
JPMorgan lowers target for Intel to $26 – ‘Underweight’
The US bank JPMorgan has lowered its price target for Intel from $35 to $26 after the quarterly results and maintained its ‘Underweight’ rating. Operational missteps, the anticipated moderate demand in the second half of the year, and market share losses underpinned his continued negative outlook on the semiconductor company’s stock, analyst Harlan Sur wrote in a study released on Friday. He drastically reduced his estimate for this year’s adjusted earnings per share.
Edited by finanzen.at / dpa-AFX