As part of the turnaround of its money-losing manufacturing sector, Intel announced on Thursday that it would cut 17,500 jobs and suspend its dividend in the fourth quarter
It also anticipated that third-quarter revenue would fall below market expectations, as it faced a decrease in expenditure on traditional data center semiconductors and a greater emphasis on AI chips, which saw it fall behind its competitors.
Intel, a chipmaker headquartered in Santa Clara, California, experienced a 20% decline in its stock price during extended trading, which could result in a loss of over $24 billion in market value. The stock experienced a 7% decline on Thursday, coinciding with a decrease in U.S. chip equities in response to Arm Holdings’ conservative forecast on Wednesday.
The broader semiconductor industry was not significantly affected by the results.
The stock prices of Nvidia, a leading AI company, and AMD, a smaller competitor, increased after hours, indicating their favorable position to capitalize on the AI growth and Intel’s relative disadvantage.
CEO Pat Gelsinger stated in an interview with Reuters, “I require a reduction in the number of personnel at headquarters and an increase in the number of personnel in the field who are responsible for assisting customers.” Regarding the dividend suspension, he stated, “Our goal is to distribute a competitive dividend eventually; however, at this time, we are prioritizing the balance sheet and deleveraging.”
According to Intel, the majority of the employment cuts will be finalized by the end of 2024. As of June 29, Intel employed 116,500 individuals, except certain subsidiaries. It declared a quarterly dividend of 12.5 cents per share in April.
Intel is currently developing advanced AI processors and expanding its for-hire manufacturing capabilities as part of a reversal strategy to regain the technological advantage it lost to Taiwan’s TSMC, the world’s largest contract chipmaker.
Intel’s costs have increased, and profit margins have been pressured by the effort to revitalize the contracting foundry business under Gelsinger. The chipmaker has recently announced that it will reduce expenses.
Intel announced on Thursday that it would reduce capital expenditure and operating expenses by over $10 billion in 2025, which is more than it had initially thought.
“Management’s willingness to implement severe and drastic measures to rectify issues is demonstrated by a $10 billion cost reduction plan.”
However, we are all questioning whether it is sufficient and whether it is a bit of a tardy response, given that CEO Gelsinger has been in charge for more than three years,” stated Michael Schulman, chief investment officer of Running Point Capital.
As of June 29, the company’s total current liabilities were approximately $32 billion, and it had cash and cash equivalents totaling $11.29 billion.
Intel’s shares have declined by over 40% this year due to its inferior market position in the AI processor sector.
Intel anticipates revenue at $12.5 billion to $13.5 billion for the third quarter, which is lower than the average estimate of $14.35 billion among analysts, according to LSEG data. It anticipated an adjusted gross margin of 38%, which was significantly lower than the market’s expectation of 45.7%.
CAPITAL REDUCE
Even as Intel has increased the production of AI chips for personal computers, analysts anticipate that TSMC will maintain its lead in the future years, as Intel’s plan to revitalize the foundry business will require years to achieve.
The April-June quarter saw a 9% increase in the PC semiconductor business.
“The irony is that their initial AI-focused processors for PCs are performing significantly better than anticipated.” Bob O’Donnell, principal analyst at TECHnalysis Research, stated, “The issue is that the costs of those chips are significantly higher, which results in a low level of profitability.”
“Moreover, the data center decline serves to underscore the fact that, even though companies are purchasing a significant amount of infrastructure for AI, the majority of it is for non-Intel GPUs,” he stated, referring to graphic processing units such as those manufactured by Nvidia.
In the quarter, Intel’s data center business experienced a 3% decline.
During a post-earnings call, CFO David Zinsner stated that the chipmaker anticipates a decline in consumer and enterprise expenditure in the current quarter, particularly in China.
He also stated that Intel’s business in China was negatively impacted in the second quarter by the revocation of export licenses in May. Intel announced in May that its sales in the country would decline as a result of the revocation of some of the chipmaker’s export licenses for a customer in China by the United States. Intel is also reducing investments.
The chipmaker plans to reduce capital expenses by 17% year-over-year to $21.5 billion in 2025, as calculated on the midpoint of a range. It anticipates that these expenses will remain relatively constant in 2024.