Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Intel on Thursday revealed drastic plans to slash its employee headcount and capital spending in an attempt to put its business back on a stable financial footing, as it suffered the latest setback in its slow-moving turnaround plans.
The emergency cost-saving moves include a 15 per cent cut to its workforce, or about 15,000 jobs, with most of the positions set to go this year. To shore up its weakening finances, Intel also scrapped its dividend and announced a surprise reversal in its surging capital spending, with investment this year now likely to be 20 per cent less than forecast.
The US chipmaker’s shares plunged as much as 20 per cent on the news in after-market trading, topping the 10 per cent decline seen on its last earnings report and reflecting another big hit to Wall Street’s confidence that chief executive Pat Gelsinger will be able to pull off his ambitious turnaround plan.
While most analysts have given him high marks for steering Intel past long-running weaknesses in its underlying manufacturing process technology, he has been less successful in recapturing market share lost to rival AMD or cashing in on the booming demand for AI chips.
“Second-half trends are more challenging than we previously expected,” Gelsinger said in a statement ahead of a conference call with analysts. By slashing headcount, investment and other costs this year, the company said it believed it would “achieve a clear line of sight toward a sustainable business model”.
Intel blamed its latest setback partly on production issues around its Meteor Lake processors, the first generation of its chips to be made using the new ultra-violet lithography technology on which it has staked its turnaround.
The Intel chief also said customers had shifted much of their data centre spending to buying AI chips such as those made by Nvidia, leading to a pause in the server processors made by Intel. Sales in the company’s data center division fell 3 per cent in the latest quarter, despite the wider boom in data centre spending that was revealed in recent days by some of the biggest tech companies.
Gelsinger claimed nothing had changed about Intel’s longer competitive position and said the company would start to see significant benefits from its recent heavy manufacturing and process investments with a new generation of chips due to reach large-scale production in 2026.
However, cuts to capital spending in the near term, and the weak third-quarter forecast, stirred concerns on Wall Street that Intel was losing ground to rivals such as AMD and Nvidia, at a time when it had been expected to start showing the benefit of Gelsinger’s three-year investment push.
He said the company had completed the “catch-up” spending it needed to do to make itself more competitive again and was in a position to tailor its investment more closely to the near-term demand outlook, leading it to take a more cautious position.
For the second quarter, Intel’s revenue fell 1 per cent to $12.8bn, below the $12.9bn Wall Street had expected. David Zinsner, chief financial officer, said the latest figures reflected “gross margin headwinds from the accelerated ramp of our AI PC product, higher than typical charges related to non-core businesses and the impact from unused capacity”.
On a pro forma basis, Intel reported earnings of 2 cents per share, down from 13 cents the year before and below the 10 cents analysts expected.
For the third quarter, meanwhile, it said revenue was likely to be $12.5bn-$13.5bn, with a pro forma loss of 3 cents a share. Wall Street had been expecting a profit of 13 cents a share on revenue of about $14.4bn.
This article has been amended to note that Intel said the job cuts will affect roughly 15,000 roles
Read the full article here
