Intel is facing a sharp drop in demand for its personal computer (PC) processors, its main business.
The layoffs will be announced this month at the earliest. According to Nikkei, Intel plans to implement the above plan at the same time as this year’s third-quarter earnings report on October 27. As of July this year, the American chipmaker has 113,700 employees worldwide.
Some departments, including Intel’s sales and marketing teams, may experience layoffs. Insiders say this could affect about 20% of employees.
Intel is facing a sharp drop in demand for its personal computer (PC) processors, its main business. In addition, the group also struggled to regain market share lost to other competitors such as Advanced Micro Devices.
In July, Intel forecast that 2022 revenue would be about $11 billion lower than its previous forecast. Recently, analysts predicted the group’s third-quarter revenue would drop by about 15%. At the same time, Intel’s once enviable profit margin is also trending down from its historical figure of around 60%.
During its earnings call for the second quarter of 2022, Intel acknowledged that it might have to make some changes to improve profitability. “We are also reducing core costs in 2022 and will consider implementing additional plans in the second half of the year” CEO Pat Gelsinger said at the time.
Currently, Intel (headquartered in Santa Clara, California) declined to comment regarding employee layoffs.
Intel’s last major wave of layoffs occurred in 2016, when it cut about 12,000 jobs, or 11% of its total staff. Since then, the group has still cut staff but by a smaller percentage. In addition, they also closed a number of divisions, including mobile modems and drones.
Like many companies in the tech industry, Intel also froze hiring earlier this year, as market conditions turned unfavorable and recession fears increased.
Bloomberg analyst Mandeep Singh said the latest staff cuts could be aimed at reducing Intel’s fixed costs by as much as 10% to 15%. He estimates that these numbers could range from at least $25 billion to $30 billion.
CEO Gelsinger took the helm of Intel last year and is working to restore the company’s reputation as a Silicon Valley legend. But even before the PC market crashed, it was an uphill battle. Intel has lost its long-standing technological edge, and its senior executives admit that the company’s culture of innovation has “withered” in recent years.
Now, the widespread slowdown is adding to the challenges facing Intel. Intel’s PC, data center, and artificial intelligence teams are facing a downturn in consumer spending that’s hurting revenue and profits.
With PC prices flat and demand weakening, Intel may also need to cut its dividend to offset cash flow, said analyst Mandeep Singh. However, he said, the plan to sell a stake in Intel’s self-driving technology business Mobileye in an IPO could alleviate those concerns.
This seems to be a difficult time for Intel as it has to cut staff. The group has lobbied heavily for this year’s $52 billion chip stimulus bill, while pledging to expand production in the US. CEO Gelsinger is planning developments that include bringing the world’s largest chip manufacturing center to Ohio.
At the same time, Intel is under great pressure from investors to increase profits. Their shares are down more than 50% in 2022, with a 20% drop in the last month alone.
Tensions between the US and China also make the future of the chip industry uncertain. The US administration announced new export restrictions on October 7, restricting the sale of chip and semiconductor manufacturing equipment to Chinese customers. The news sent chipmakers’ shares plunging again, with Intel stock falling 5.4% that day.
Intel has been trying to regain its footing in the industry by releasing new PC processors and graphics semiconductors. A key part of their strategy is to sell more chips to the data center market, where rivals AMD and Nvidia have already entered.
On October 11, Google revealed that new technology provided by Intel for its server farms will help speed up artificial intelligence tasks. Intel is now looking to pursue those goals as a leaner company.
“There are huge opportunities for Intel to improve and deliver maximum output” said David Zinsner, chief financial officer of Intel, after the company’s latest quarterly report.
Source: Nikkei, CNN