Intel announced on Thursday that it will reduce its workforce by more than 15%, translating to approximately 17,500 employees, and suspend its dividend starting in the fourth quarter. This strategic move is part of the company’s broader turnaround plan, which focuses on restructuring its struggling manufacturing sector and adapting to shifts in the semiconductor market.
The company also revised its third-quarter revenue forecast downward, predicting figures below market expectations. Intel is grappling with a slowdown in traditional data center semiconductor spending and increased competition in the artificial intelligence (AI) chip market. Shares of the Santa Clara, California-based chipmaker fell 20% in after-hours trading, reflecting investor concern. The stock had already closed 7% lower on Thursday, alongside a broader decline in U.S. chip stocks following a conservative forecast from Arm Holdings.
Despite the upheaval, the broader semiconductor industry remained relatively stable, with AI leaders Nvidia and AMD seeing slight gains after hours. These companies are well-positioned to benefit from the ongoing AI boom, contrasting with Intel’s more challenging position.
Intel CEO Pat Gelsinger explained that the layoffs are aimed at shifting resources from headquarters to field operations, where they can better support customers. Regarding the dividend suspension, he emphasized the company’s priority to strengthen its balance sheet and reduce debt.
The job cuts are expected to be largely completed by the end of 2024. Intel, which had approximately 116,500 employees as of June 29, will also implement a $10 billion cost reduction plan by 2025. This move reflects the company’s need to address increasing operational costs and margin pressures as it seeks to regain its technological edge, particularly in the AI and foundry sectors.
Intel’s turnaround strategy includes enhancing its AI processor capabilities and expanding its manufacturing services, aiming to recover ground lost to Taiwan’s TSMC, the leading contract chipmaker. However, analysts warn that Intel’s recovery efforts may take years to fully materialize. The company anticipates a decline in revenue for the third quarter, forecasting $12.5 billion to $13.5 billion, which falls short of the analysts’ average estimate of $14.35 billion. Its adjusted gross margin is projected to be 38%, significantly below market expectations of 45.7%.
The company’s data center business has seen a 3% decline, and Intel’s recent struggles in China, exacerbated by revoked export licenses, have further impacted its performance. The company expects weaker consumer and enterprise spending in the current quarter, particularly in China. Intel is also cutting its capital expenses by 17% in 2025, bringing them to $21.5 billion, while maintaining a cautious outlook for investments in 2024.
