Intel announced today that it plans to lay off more than 15% of its workforce by the end of the year, meaning roughly 20,000 employees or more based on recent headcount numbers, amid troubling financial results this quarter. The company also announced that it has encountered yield issues with its Meteor Lake processors, which negatively impacted the bottom line. The company also plans to suspend its dividend in the fourth quarter. Intel’s stock dropped 5% in after-hours trading on the announcement.
Intel CEO Pat Gelsinger published a blog post outlining the changes and the rationale behind them. He cited that the company plans to reduce spending by $10 billion in 2025 with the move. The company will offer employees buyouts and early retirement options. Intel did say that its 18A process node, which is exceedingly important to its success as a fledgling custom foundry, remains on track — the company recently released its 1.0 PDK, a critical set of design rules that defines how chipmakers can produce chips using the node, to its customers. Intel also says its next-gen Panther Lake and Clearwater Forest processors also remain on track.
Analyst Patrick Moorhead said that Gelsinger told him about the Meteor Lake yield issues, as you can read if you expand the tweet below.
It was a very rough Q2 for $INTC. And that guide… Thanks, @Pgelsinger, for the time to discuss.It appears that there were yield/throughput issues on Meteor Lake, negatively impacting gross margins. When you have to get the product to your customers, and you have wafers to… pic.twitter.com/pHU66xvFe7August 1, 2024
Here are the most relevant bullet points from the company’s press release:
- Implementing comprehensive reduction in spending, including a more than 15% headcount reduction, to resize and refocus.
- Suspending dividend starting in the fourth quarter of 2024. The company reiterates its long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels.
- Reducing Operating Expenses: The company will streamline its operations and meaningfully cut spending and headcount, reducing non-GAAP R&D and marketing, general and administrative (MG&A) to approximately $20 billion in 2024 and approximately $17.5 billion in 2025, with further reductions expected in 2026. Intel expects to reduce headcount by greater than 15% with the majority completed by the end of 2024.
- Reducing Capital Expenditures: With the end of its historic five-nodes-in-four-years journey firmly in sight, Intel is now shifting its focus toward capital efficiency and investment levels aligned to market requirements. This will reduce gross capital expenditures* in 2024 by more than 20% from prior projections, bringing gross capital expenditures in 2024 to between $25 billion and $27 billion. Intel expects net capital spending* in 2024 of between $11 billion and $13 billion. In 2025, the company is targeting gross capital expenditures between $20 billion and $23 billion and net capital spending between $12 billion and $14 billion.
- Reducing Cost of Sales: The company expects to generate $1 billion in savings in non-variable cost of sales in 2025. Product mix will continue to be a headwind next year, contributing to modest YoY improvements to 2025’s gross margin.
- Maintaining Core Investments to Execute Strategy: The company continues to advance its long-term innovation and path to leadership across process technology and products, and the increased efficiency from its actions is expected to further support its execution. In addition, Intel continues to sustain investments to build a resilient and sustainable semiconductor supply chain in the United States and around the world.
- Intel is nearing the completion of its promised five-nodes-in-four-years strategy, with Intel 18A on track to be manufacturing-ready by the end of this year and production wafer start volumes in the first half of 2025. In July 2024, Intel released to foundry customers the 1.0 PDK for Intel 18A. The company’s first two Intel 18A products, Panther Lake for client — the first microprocessor to use RibbonFet, PowerVia and advanced packaging — and Clearwater Forest for servers, are on track to launch in 2025.
This is breaking news…more to come…
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