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Intel to Cut 15% of Workforce and Suspend Dividend Amid Manufacturing Turnaround

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Intel announces a 15% workforce reduction and dividend suspension as part of a turnaround strategy. Learn about the impacts and future plans of the chipmaker.

Bollywood Fever: Intel announced on Thursday that it will cut more than 15% of its workforce, equivalent to approximately 17,500 employees, and suspend its dividend starting in the fourth quarter. This move is part of the chipmaker’s effort to turn around its struggling manufacturing business.

Additionally, Intel forecast third-quarter revenue below market estimates, grappling with reduced spending on traditional data center semiconductors and a focus on AI chips, where it lags behind competitors.

Shares of Santa Clara, California-based Intel plummeted 20% in extended trading, potentially losing more than $24 billion in market value. The stock had already closed down 7% on Thursday, in response to a conservative forecast from Arm Holdings on Wednesday that affected U.S. chip stocks.

Despite the downturn, AI powerhouse Nvidia and smaller rival AMD saw an uptick after hours, highlighting their strong positioning in the AI market compared to Intel.

“I need less people at headquarters, more people in the field, supporting customers,” CEO Pat Gelsinger told Reuters, discussing the job cuts. On the dividend suspension, he added, “Our objective is to … pay a competitive dividend over time, but right now, focusing on the balance sheet, deleveraging.”

Intel

Intel, which employed 116,500 people as of June 29, excluding some subsidiaries, said the majority of the job cuts would be completed by the end of 2024. In April, it declared a quarterly dividend of 12.5 cents per share.

The company is in the midst of a turnaround plan focused on developing advanced AI processors and expanding its for-hire manufacturing capabilities, aiming to regain the technological edge it lost to Taiwan’s TSMC, the world’s largest contract chipmaker.

This push to revitalize the contracting foundry business has increased Intel’s costs and pressured profit margins. On Thursday, Intel announced it would cut operating expenses and reduce capital expenditure by more than $10 billion in 2025, more than initially planned.

“A $10 billion cost reduction plan shows that management is willing to take strong and drastic measures to right the ship and fix problems. But we are all asking, ‘is it enough’ and is it a bit of a late reaction considering that CEO Gelsinger has been at the helm for over three years?” said Michael Schulman, chief investment officer of Running Point Capital.

As of June 29, the company had cash and cash equivalents of $11.29 billion and total current liabilities of about $32 billion.

Intel’s lagging position in the AI chip market has contributed to a more than 40% drop in its shares so far this year. For the third quarter, Intel expects revenue of $12.5 billion to $13.5 billion, compared with analysts’ average estimate of $14.35 billion, according to LSEG data. It forecast an adjusted gross margin of 38%, falling short of market expectations of 45.7%.

Analysts believe Intel’s plan to turn around the foundry business will take years to materialize and expect TSMC to maintain its lead in the coming years, even as Intel ramps up production of AI chips for personal computers. The PC chip business grew 9% in the April-June quarter.

“The irony is that … their first AI PC-focused processors are selling much better than expected. The problem is that the costs for those chips are much higher, meaning their profitability on them isn’t great,” said Bob O’Donnell, chief analyst at TECHnalysis Research.

“In addition, the data center decline reinforces the fact that while companies are buying lots of infrastructure for AI, the vast majority is for non-Intel GPUs,” he said, referring to graphic processing units like those sold by Nvidia.

Intel’s data center business declined 3% in the quarter. CFO David Zinsner noted that the chipmaker expects weaker consumer and enterprise spending in the current quarter, especially in China. Revoked export licenses in May also impacted Intel’s business in China during the second quarter.

To cut costs, Intel expects to reduce capital expenses by 17% in 2025 year-on-year to $21.5 billion, based on the midpoint of its forecast range. These costs are expected to remain roughly flat in 2024.


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