What you need to know
- Chip giant Intel is laying off 15,000 jobs as part of a $10 billion cost-saving plan.
- CEO Pat Gelsinger revealed the news in a memo to staff today, describing the cuts as “the most consequential” in the company’s long history.
- Intel has faced incredibly tough competition from rival chip makers, as NVIDIA and others increasingly dictate the market’s flow.
- Intel has struggled to find growth in an era increasingly dominated by server tech, GPUs, and AI trends.
As a tech enthusiast with over two decades of personal investment in the industry, I must admit that Intel’s announcement today is a tough pill to swallow. I remember the days when Intel was at the forefront of technology, pushing boundaries and setting new standards. However, it seems the tide has turned, and the competition is becoming increasingly fierce.
“I find it tough to convey this information, but I’m aware it might be harder for you to process. This is the message I’ve just passed on, as communicated by Intel CEO Pat Gelsinger today.”
In an unprecedented move, Intel is planning to reduce its workforce by approximately 15,000 employees as part of a cost-cutting strategy aimed at saving $10 billion by 2025. This news was shared on Intel’s website today, in a memo written by Intel’s CEO, Pat Gelsinger. The memo outlined the savings plan and pointed out areas where Intel is still experiencing difficulties.
Gelsinger criticized Intel for not meeting its growth goals and failing to leverage emerging trends, while expressing regret. Lately, NVIDIA has surpassed all others as the world’s most lucrative company due to the AI boom. Interestingly, Microsoft decided to collaborate with Qualcomm instead of Intel (although Intel and AMD might join the partnership later this year when Qualcomm’s exclusivity ends).
“Gelsinger stated that our income hasn’t expanded as we anticipated and we haven’t fully taken advantage of emerging opportunities, such as AI. Our expenses are excessive, and our profit margins are insufficient. To tackle both issues, particularly considering our financial performance and the challenging outlook for the second half of 2024 which is now more difficult than initially predicted, we need to take bold steps forward.”
Intel has acknowledged that its losses predominantly stem from its Intel Foundry service, an area that has encountered numerous obstacles. The company expanded its Intel Foundry operations in 2021, but now anticipates that this sector will not become profitable until 2027. Given the intricate and challenging nature of manufacturing chips, only a limited number of entities can do so at scale. Due to the escalating demand for chips, governments in Europe and the United States are intervening to bolster and diversify the industry, which is currently dominated by a few key players such as Samsung and TSMC (for more information, refer to our previous coverage on the CHIPS Act and its connection to U.S. national security).
Intel’s traditional businesses continue to do well but are impacted by market demand for laptops and PCs, where the firm faces competition from AMD and now Snapdragon PCs. Intel is working on overhauling its chip range to meet some of these challenges, with Lunar Lake set to arrive in September 2024, in PCs debuting at IFA in Berlin, Germany. Lunar Lake should compete more closely with Qualcomm’s Snapdragon range on power efficiency without the compatibility issues ARM occasionally encounters when running programs designed for x86 Windows devices.
Gelsinger expressed a wish to enhance productivity at Intel and minimize bureaucracy, which is often criticized for limiting Intel’s capacity to swiftly adapt and capitalize on emerging market opportunities. Intel intends to take a tough stance on discontinuing underperforming products and streamlining its product range in general, while also halting stock dividend payments to shareholders temporarily.
As a dedicated follower of tech stocks, I’m noticing an intriguing development: Intel’s share price has dipped by 5.5% in after-hours trading at present. This dip seems to align with the trend we’ve been seeing among other tech companies recently. However, it’s important to note that some AI-related tech stocks have been under scrutiny due to a skeptical outlook from Goldman Sachs, suggesting that the AI boom might just be hype. If AI doesn’t turn out to be the growth engine these companies like Intel are banking on, finding a clear path to genuine growth could become more challenging.
Gelsinger cautioned at the end that the road ahead won’t be simple, so don’t expect it to be either. This day, and others like it, will prove challenging for everyone. However, despite the hardships, we are taking the steps required to build upon our accomplishments and initiate a period of expansion and development.
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2024-08-02 00:43