- Intel said it is laying off about 15% of its workforce
- Most of the cuts will be made by the end of 2024
- The move to stop “non-essential work” comes after the company posted a $1.6B loss
Cloud providers may be reaping the rewards of the artificial intelligence (AI) boom, but it seems Intel isn’t sharing in that wealth. The company announced it plans to halt all “non-essential work” and slash 15,000 jobs by the end of the year.
In a letter to employees, CEO Pat Gelsinger noted “We’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low. We need bolder actions to address both.”
RELATED: While Intel eyes future prize, the present pain is getting worse
The plan? Cut 15% of the workforce (in part through a “voluntary” departure program), simplify its portfolio by cutting “underperforming” products and slash capital expenditures by 20%, all with the goal to achieve $10 billion in savings by 2025.
Costs, trade restrictions and more costs
Patrick Moorhead, founder and principal at Moor Insights and Strategy, said the company was forced to pulled the trigger on cuts because it “does not see demand for the second half of the year and even 2025 as strong enough to support its cost structure.”
Moorhead and neXt Curve founder Leonard Lee said a range of hurdles brought Intel to this point. Among these were high costs associated with its decision to move production of its Meteor Lake chips from Oregon to Ireland, the impact of trade restrictions on its business in China (where Lee said it has a lot of exposure) and the cost of ramping product roadmaps in the data center and client computing markets in response to competitive pressure.
“What’s unclear to me at this point is what are the downstream impacts of these reductions,” Moorhead added. “For instance, with 15% less people, what does this mean in terms of roadmap?”
NeXt Curve founder Leonard Lee added it's "concerning that Intel feels it needs to make such a significant restructuring. It suggests that some key strategic assumptions didn't pan out with the shifts in the market and competitive dynamic that is playing out at the moment."
Intel’s move came as the company posted a $1.6 billion loss for Q2 2024. It was the company’s second straight quarterly loss, following on a loss of $437 million in Q1.
"Everyone is focusing on AI because it's the market with the biggest current demand, and if Intel had been better positioned in AI it might have made up for losses elsewhere," Techsponential's Avi Greengart told us. "However, Intel's problems have been in execution in its core markets, made worse by stronger competition from Apple, AMD, custom silicon at hyperscalers, and, going forward, Qualcomm."
Who will be impacted?
Intel notably didn’t elaborate on what it counts as “non-essential” work. But a glance at its earnings sheet shows where it’s feeling the most pain. Revenue for the company’s Altera FPGA unit was down 57%. Sales were also down in its Data Center and AI (3%), Mobileye (3%) and Network and Edge (1%) divisions.
Lee said "My take is that the lion share of the layoffs will occur with SG&A and the product divisions. That is not to say there won’t be rationalization in the Intel Foundry division."
Roy Chua, founder and principal at AvidThink, speculated in an email to Fierce that "the sales and marketing group will almost certainly be impacted" but "given their strategic desire (and the U.S. national imperative) to invest in their foundry services (IFS), the IFS group may remain the most unscathed." He added the Client Computing group as well as the Data Center and AI group will most likely be streamlined but remain intact since both are home to product lines that are core to Intel's strategy.
"I'm not sure what this layoff and cost-cutting will mean for Intel’s goal is to be the second largest foundry by 2030, and how it will impact their process leadership milestones: Intel4, Intel3, Intel 20A, Intel 18A, and Intel 14A as part of their IDM (integrated device manufacturing) 2.0 foundry strategy. There's a lot of remaining investment and time required on this segment to achieve returns but I don't think Intel will shortchange a key element of future strategy — though they may seek more partners to assist them financially," Chua said.
Greengart concluded "I just hope that they're strategic about it and not just cutting across the board, which makes it harder to execute AND harder to invest in strategic areas."
8/5/2024 9:30 am ET: This story has been updated to include comments from Roy Chua.