According to Nikkei, Intel plans to lay off 15,000 people. This comes after the company reported an 85% year-on-year drop in second-quarter profits on Thursday. Just two days earlier, rival AMD announced astonishing performance driven by strong sales of AI chips.
In the fierce competition of AI chips, Intel faces increasingly fierce competition from AMD and Nvidia. Intel has accelerated the development of next-generation chips and increased spending on building its own manufacturing plants, putting pressure on its profits.
For the three months ending June 29, Intel reported revenue of $12.8 billion, a 1% year-on-year decrease. Net income plummeted by 85% to $830 million. In contrast, AMD reported a 9% increase in revenue to $5.8 billion on Tuesday. Net income increased by 19% to $1.1 billion, driven by strong sales of AI data center chips.
In after-hours trading on Thursday, Intel's stock price fell by 20% from the day's closing price, while AMD and Nvidia saw slight increases.
Intel CEO Pat Gelsinger said in a press release, "While we achieved key product and process technology milestones, our financial performance in the second quarter was disappointing." Chief Financial Officer George Davis attributed the softness of the quarter to "accelerated growth in our AI PC products, higher-than-expected costs associated with non-core businesses, and the impact of underutilized capacity."
As Nvidia further solidifies its leading position in the AI chip field, AMD and Intel have been vying for the second position and betting on AI-supported PCs. However, AMD's sales growth in recent quarters has been much stronger.
Therefore, Intel aims to "improve efficiency and market competitiveness" through a $10 billion cost-saving plan by 2025, including laying off approximately 15,000 people, accounting for 15% of its total workforce.
"Our revenue did not grow as expected—we have not fully benefited from strong trends such as AI," Gelsinger explained in a statement to employees on Thursday.
"Our costs are too high, and our profit margins are too low," he continued. "We need to take bolder action to address these two issues—especially considering our financial performance and the outlook for the second half of 2024, which is more challenging than previously expected."
Intel CEO Pat Gelsinger delivered a speech to employees about the company's next-stage transformation plan.
On August 1, 2024, following the announcement of Intel's second-quarter financial report for 2024, CEO Pat Gelsinger sent the following notice to employees:
Team,
We are moving the all-company meeting to today, following the earnings call, where we will announce significant cost reduction measures. We plan to achieve $10 billion in cost savings by 2025, including laying off approximately 15,000 people, which accounts for 15% of our total workforce. Most of these measures will be completed by the end of this year.
For me, this is painful news. I know it will be even more difficult for all of you. Today is an extremely challenging day for Intel as we are undergoing some of the most significant transformations in the company's history. When we meet in a few hours, I will talk about why we are doing this and what you can expect in the coming weeks. But before that, I want to share my thoughts.
In essence, we must align our cost structure with new operating models and fundamentally change the way we operate. Our revenue did not grow as expected, and we have not fully benefited from strong trends such as AI. Our costs are too high, and our profit margins are too low. We need to take bolder action to address these two issues—especially considering our financial performance and the outlook for the second half of 2024, which is more challenging than previously expected.
These decisions have been a tremendous challenge for me personally, and it is the most difficult thing I have done in my career. I assure you that in the coming weeks and months, we will prioritize a culture of honesty, transparency, and respect.
Next week, we will announce an enhanced retirement plan for eligible employees across the company and widely offer a voluntary separation program. I believe how we implement these changes is as important as the changes themselves, and we will uphold Intel's values throughout the process.
Key Priorities
The actions we are taking will make Intel a leaner, simpler, and more agile company. Let me highlight our key areas of focus:
Reducing operating costs: We will drive operational and cost efficiency across the entire company, including the aforementioned cost savings and workforce reduction.
Simplifying our product portfolio: We will complete actions to simplify our business this month. Each business unit is conducting a review of its product portfolio and identifying underperforming products. We will also integrate key software assets into our business units to accelerate the shift to system-based solutions. We will narrow our focus on fewer, more impactful projects.
Eliminating complexity: We will reduce layers, eliminate overlapping responsibilities, stop non-essential work, and foster a culture of ownership and accountability. For example, we will integrate the customer success department into sales, marketing, and communications to simplify our go-to-market process.
Reducing capital and other costs: With the completion of our historic four-year five-node roadmap, we will review all active projects and assets to begin shifting our focus to capital efficiency and more normalized spending levels. This will result in a reduction of over 20% in our 2024 capital expenditures, and we plan to reduce non-variable selling costs by approximately $1 billion by 2025.
Suspending dividend payouts: Starting next quarter, we will suspend dividend payouts to prioritize business investments and achieve more sustainable profitability.
Maintaining growth investments: Our IDM 2.0 strategy remains unchanged. After the effort to rebuild our innovation engine, we will continue to focus on investments in process technology and core product leadership.
Future
I do not imagine that the road ahead will be smooth. Nor should you. Today is a difficult day for all of us, and there will be more difficult days ahead. But despite the challenges, we are making necessary changes to solidify our progress and usher in a new era of growth.
As we embark on this journey, we must remain ambitious, knowing that Intel is a place where great ideas are born and the power of possibility can overcome the status quo. After all, our mission is to create technology that changes the world and improves the lives of everyone on the planet. We strive to embody these ideals more than any other company in the world.
To fulfill this mission, we must continue to drive our IDM 2.0 strategy, which remains unchanged: re-establishing process technology leadership; investing in large-scale, globally resilient supply chains through expanded manufacturing capabilities in the U.S. and the EU; becoming a world-class, cutting-edge foundry for internal and external customers; rebuilding product portfolio leadership; and achieving ubiquitous AI.
Over the past few years, we have rebuilt a sustainable innovation engine, which is now largely in place and operational. It is now time to focus on building a sustainable financial engine to drive our performance growth. We must improve execution, adapt to new market realities, and operate in a more agile manner. This is the spirit in which we are taking action—we know that the choices we make today, though difficult, will enhance our ability to serve customers and grow our business in the years to come.
As we take the next step on our journey, let us not forget that what we are doing has never been more important than it is now. The world will increasingly rely on silicon to function—a healthy, vibrant Intel is needed. This is why the work we do is so important. We are not only reshaping a great company, but also creating technology and manufacturing capabilities that will reshape the world for decades to come. This is something we should never lose sight of in our pursuit of our goals.
We will continue the discussion in a few hours. Please bring your questions so that we can have an open and honest discussion about what comes next.
Post time: Aug-12-2024