Intel unveils plans to axe 15% of workforce in cost saving initiative

Tech giant Intel recently revealed that it would be cutting more than 15% of its total workforce, as well as stopping its dividend in the last quarter of this year. This move comes in an attempt to implement a new strategy aimed at boosting the company’s loss-making manufacturing arm. 

The cost reduction plan worth about $10bn (€9.25bn) is expected to lay off approximately 17,500 employees globally, with most posts due to be cut by the end of this year. 

Apart from a decreasing the staff headcount, the plan will also focus on building a sustainable financial model to speed up profitable growth. This will include reducing capital and operating expenses, as well as the cost of sales. However, the company has revealed that it plans to maintain its core investments. 

Regarding the dividend suspension, Intel reconfirmed that although it is committed to a competitive dividend in the long-term, at the moment, its focus is on deleveraging its balance sheet. 

This restructuring plan also comes as Intel has been struggling recently due to the US revoking some export licences, restricting it from selling certain semiconductor chips to Chinese clients such as Huawei. Back in May this year, Intel also warned that this decision would impact its revenues in the second quarter. 

Intel reports loss for the second quarter

The company released its second quarter earnings on Thursday, reporting a revenue of $12.8bn (€11.83bn) for the quarter, which was a 1% decrease from Q2 2023. The gross margin was 35.4% in Q2 2024, down from 35.8% in the second quarter of 2023. 

Intel also reported $2.3bn in cash from operations for the second quarter of the year, and paid $0.5bn in dividends during this period. 

It also issued a revenue warning for the third quarter of the year. Intel now estimates Q3 2024 revenue to be somewhere between $12.5bn and $13.5bn. If so, this would be well below market expectations of $14.35bn, according to analysts polled by the London Stock Exchange Group (LSEG). 

The company now expects an adjusted gross margin of 38% for the third quarter of the year, which would also miss market estimates of 45.7%. 

This revenue warning is mainly due to the company wanting to focus more on artificial intelligence semiconductors, in order to catch up on its competitors in the coming months, rather than on traditional data centre chips. 

In a statement, Intel CEO Pat Gelsinger said: “Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones. 

“Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation.” 

David Zinsner, chief financial officer (CFO) of Intel said, “Second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our artificial intelligence PC product, higher than typical charges related to non-core businesses, and the impact from unused capacity.

“By implementing our spending reductions, we are taking proactive steps to improve our profits and strengthen our balance sheet. We expect these actions to meaningfully improve liquidity and reduce our debt balance while enabling us to make the right investments to drive long-term value for shareholders.”