Intel has announced sweeping changes following a net loss of $1.6 billion for Q2 2024. In a bold cost-saving plan, the tech giant is set to cut over 15,000 jobs and slash expenditures across research, development, marketing, and capital investments.
“These are some of the most consequential changes in our company’s history,” Intel CEO Pat Gelsinger told employees in a somber note after the earnings report was published. “Our revenues have not grown as expected, and we’ve yet to fully benefit from powerful trends like AI. Our costs are too high, and our margins are too low. We need bolder actions to address both.”
The layoffs, expected to be completed by the end of this year, are part of Intel’s strategy to reduce its operating expenses by $10 billion by 2026. This involves cutting research and development and marketing budgets by billions, reducing capital expenditures by 20%, and decreasing non-variable costs of goods sold by approximately $1 billion in 2025. Additionally, Intel will not pay its dividend in Q4 2024
Intel’s financial struggles were starkly highlighted by the $1.6 billion loss in Q2, overshadowing the $437 million loss from the previous quarter. The Intel Foundry Services division alone reported a staggering $2.8 billion operating loss, despite a modest 4% year-on-year revenue increase.
Despite these setbacks, Intel has continued to invest heavily in expanding its manufacturing capabilities. The company recently funneled $20 billion into a semiconductor plant in Ohio and committed $47 billion to projects in Arizona, Germany, and Malaysia. In March 2024, Intel secured $8.5 billion in funding from the CHIPS and Science Act, and talks are ongoing to finance an $11 billion chip facility in Ireland.
Nevertheless, Intel’s other business has also been off and down. Altera, the FPGA business unit, meanwhile saw a stunning 57% year-on-year revenue decline to $361 million. Revenue fell by 3% for the Data Center and AI (DCAI) segment to $3 billion, while the Network and Edge (NEX) tilted down less than a percent to reach $1.
During an earnings call, CFO David Zinsner sounded cautiously optimistic about the future: “We expect sequential growth in the data center throughout the second half as demand for traditional servers improves modestly.” ” We are getting an early read of the AI part in the datacenter; it will increase as we go into next year.
Intel’s shares fell as much as 20% in extended trading following the earnings report, showing investor dissatisfaction. Gelsinger began the call by saying it was a “disappointing” quarter and admitted that trends through 2H21 will be more challenging than Intel expected.
These moves by Intel to refocus resources and financial priorities seem like prudent measures on the way towards tentative recovery, however long that might take. Again, this is nothing concrete here but surely it fits in well with where tech has been headed for a while now.
