The results did not rock the broader chip industry.
AI powerhouse Nvidia and smaller rival AMD ticked up after hours, underscoring how well-positioned they were to take advantage of the AI boom, and Intel’s relative disadvantage.
“I need less people at headquarters, more people in the field, supporting customers,” CEO Pat Gelsinger told Reuters in an interview, talking about the job cuts. On the dividend suspension, he said: “Our objective is to … pay a competitive dividend over time, but right now, focusing on the balance sheet, deleveraging.”
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.
Intel is in the middle of a turnaround plan, focused on developing advanced AI processors and building-out its for-hire manufacturing capabilities, as it aims to recoup the technological edge it lost to Taiwan’s TSMC, the world’s largest contract chip maker.
The push to energise that contract foundry business under Gelsinger has increased Intel’s costs and pressured profit margins. More recently, the chip maker has said it will cut costs.
On Thursday, Intel announced it would cut operating expenses and reduce capital expenditure by more than US$10 billion in 2025, more than it initially planned.
“A US$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.
The company had cash and cash equivalents of US$11.29 billion, and total current liabilities of about US$32 billion, as of June 29.
Intel’s lagging position in the market for AI chips has sent its shares down more than 40 per cent so far this year.
For the third quarter, Intel expects revenue of US$12.5 billion to US$13.5 billion, compared with analysts’ average estimate of US$14.35 billion, LSEG data showed. It forecast adjusted gross margin of 38 per cent, well short of market expectations of 45.7 per cent.
Analysts believe Intel’s plan to turn around the foundry business will take years to materialise and expect TSMC to maintain its lead in the coming years, even as Intel has ramped up production of AI chips for personal computers.
The PC chip business grew 9 per cent 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 centre 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 centre business declined 3 per cent in the quarter.
CFO David Zinsner said on a post-earnings call that the chip maker expects weaker consumer and enterprise spending in the current quarter, especially in China.
Export licenses that were revoked in May also hurt Intel’s business in China in the second quarter, he said. Intel said in May its sales there would take a hit after Washington revoked some of the chipmaker’s export licenses for a customer in China.
Intel is also slashing investments.
It expects to cut capital expenses by 17 per cent in 2025 year on year to US$21.5 billion, calculated on the midpoint of a range the chip maker forecast. It expects these costs to stay roughly flat in 2024.
