Semiconductor giant Intel has announced a series of drastic measures to address its financial difficulties. The company plans to reduce its workforce by more than 15%, cutting at least 15,000 jobs. This decision is part of a $10 billion savings plan for 2025.
In addition to layoffs, Intel will reduce R&D and marketing spending by billions of dollars each year through 2026. The company will also cut capital expenditures by more than 20% this year and review all active projects and equipment to ensure efficient use of resources.
Intel’s decision was prompted by disappointing second-quarter 2024 financial results, which saw the company post a loss of $1.6 billion. Despite some success in the PC and server space, Intel is losing ground in the AI chip market and is facing stiff competition from companies like Nvidia and AMD.
How Intel’s $10 Billion Cut Plan Will Begin
Intel is investing heavily in developing new technologies and building new factories, but these efforts have not yet yielded the results hoped for. The company also faces the challenge of Arm chips, which are more energy efficient than its own products.
Intel’s future looks uncertain. The company will have to prove it can adapt to new market demands and compete with its rivals. Staff cuts and cost reductions are a first step towards recovery, but the road will be long and difficult. In the meantime, it has announced an extension of the crash warranty for 13th and 14th generation CPUs.
Below is Gelsinger’s full note. What do you think about this crisis?
Gelsinger’s note
“Team,
We moved our All Company Meeting to today, following our earnings call, as we announce significant actions to reduce our costs. We expect to achieve $10 billion in cost savings in 2025, and that includes reducing our headcount by approximately 15,000 roles, or 15% of our workforce. The majority of these actions will be completed by the end of this year.
This is painful news to share. I know it will be even harder for you to read. This is an incredibly difficult day for Intel, as we make some of the most significant changes in our company’s history. When we meet in a few hours, I’ll talk about why we’re doing this and what you can expect in the weeks ahead. In advance, I wanted to share some of my thoughts.
Pat Gelsinger, Intel CEO
Simply put, we need to align our cost structure with our new operating model and fundamentally change the way we operate. Our revenues have not grown as expected — and we have not yet fully benefited from powerful trends like AI. Our costs are too high, our margins are too low. We need bolder actions to address both, especially given our financial results and outlook for the second half of 2024, which are more challenging than expected.
These decisions have been challenging for me, and it’s the hardest thing I’ve done in my career. My promise is that we will prioritize a culture of honesty, transparency, and respect in the weeks and months ahead. Next week, we will announce a company-wide early retirement offer for eligible employees and offer a voluntary exit nomination program. I believe how we implement these changes is as important as the changes themselves, and we will adhere to Intel’s values throughout this process.
Since introducing our new operating model, we have taken a clean view of the company and measured ourselves against benchmarks for high-performance foundries, fabless businesses, and corporate functions. This work has made it clear that our cost structure is not competitive. For example, our annual revenue in 2020 was about $24 billion higher than last year, yet our current workforce is actually 10% larger than it was then. There are many reasons for this, but it is not a sustainable path.
In addition to our costs, we need to change the way we operate, something many of you shared as part of our employee experience survey. There’s too much complexity, so we need to both automate and simplify processes. It takes too long to make decisions, so we need to eliminate red tape. And there’s too much inefficiency in the system, so we need to speed up workflows.
Key priorities
The actions we are taking will make Intel a leaner, simpler, and more agile company. Let me highlight our areas of focus:
Reducing operating costs: We will drive operational and cost efficiencies across the company, including the cost savings and headcount reductions noted above. Simplifying our portfolio: We will complete actions this month to simplify our operations. Each business unit is conducting a portfolio review and identifying underperforming products. We are also integrating key software assets across our business units to accelerate our move to systems-based solutions. And we will narrow our incubation focus to fewer, higher-impact projects. Eliminating complexity: We will reduce layers, eliminate overlapping areas of responsibility, terminate non-essential work, and foster a culture of greater ownership and accountability. For example, we will consolidate Customer Success into Sales, Marketing and Communications to simplify our go-to-market efforts. Capital and Other Cost Reductions: With the completion of our historic five-node, four-year roadmap clearly in sight, we will review all active projects and equipment to begin shifting our focus toward capital efficiency and more normalized expense levels. This will reduce our 2024 capital expenditures by more than 20%, and we expect to reduce our nonvariable cost of goods sold by approximately $1 billion in 2025. Suspending Our Dividend: We will suspend our stock dividend starting next quarter to prioritize investments in the business and drive stronger profitability. Maintaining Investments in Growth: Our IDM 2.0 strategy is unchanged. Having fought hard to re-establish our innovation engine, we will maintain key investments in our process technology and key product leadership.
The future
I have no illusions that the path ahead will be easy. You shouldn’t either. This is a difficult day for all of us, and there will be more difficult days to come. But as difficult as this is, we are making the changes necessary to build on our progress and usher in a new era of growth.
When we began this journey, we aimed high, knowing that Intel is a place where great ideas are born and the power of what is possible triumphs over the status quo. After all, our mission is to create technologies that change the world and improve the lives of every person on the planet. And at our best, we have embodied these ideals more than any other company in the world.
To live up to this mission, we must continue to drive our IDM 2.0 strategy, which remains the same: reestablish process technology leadership; invest in a resilient global supply chain by expanding production capacity in the US and EU; become a world-leading foundry for internal and external customers; rebuild product portfolio leadership; and deliver AI Everywhere.
Intel Core i9 13900, one of the chips with crash problems
Over the past few years, we have rebuilt a sustainable innovation engine that is largely in place and on pace with the times. It is time to focus on building the sustainable financial engine needed to drive our performance. We must improve our execution, adapt to new market realities, and operate as a more agile company. That is the spirit of the actions we are taking, knowing that the choices we make today, no matter how difficult, will strengthen our ability to serve our customers and grow our business for years to come.
As we take these next steps in our journey, let’s not forget that there has never been a greater need for what we do. The world will increasingly run on silicon — and the world needs a healthy, vibrant Intel. That’s why the work we’re doing is so important. We’re not only rebuilding a great company, we’re also creating technologies and capabilities that will reshape the world for decades to come. And that’s something we should never lose sight of as we move forward in pursuit of our goals.
We’ll talk more in a few hours. Please come with your questions so we can have an open and honest discussion about what comes next.”
