Feed: AnandTech
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Title: Intel Bleeds Red, Plans 15% Workforce Layoff and $10B Cuts For 2025

Date: Thu, 01 Aug 2024 19:15:00 EDT
Link: https://www.anandtech.com/show/21496/intel-bl...

Amidst the backdrop of a weak quarterly earnings report that saw Intel lose
money for the second quarter in a row, Intel today has announced that the
company will be cutting costs by $10 billion in 2025 in an effort to bring
Intel back to profitability. The cuts will touch almost every corner of the
company in some fashion, with Intel planning to cut spending on R&D,
marketing, administration, and capital expenditures. The most significant of
these savings will come from a planned 15% reduction in force, which will see
Intel lay off 15,000 employees over the next several months - thought to be
one of Intel's biggest layoffs ever.

In an email to Intel's staff, which was simultaneously published to Intel's
website, company CEO Pat Gelsinger made the financial stakes clear: Intel is
spending an unsustainable amount of money for their current revenues. Citing
the company's current costs, Gelsinger wrote that "our costs are too high,
our margins are too low," and that "our annual revenue in 2020 was about $24
billion higher than it was last year, yet our current workforce is actually
10% larger now than it was then." Consequently, Intel will be enacting a
series of painful cuts to bring the company back to profitability.

Intel is not publicly disclosing precisely where those cuts will come from,
but in the company's quarterly earnings release, the company noted that it
was targeting operating expenses, capital expenditures, and costs of sales
alike.

For operating expenses, Intel will be cutting "non-GAAP R&D and marketing,
general and administrative" spending, with a goal to trim that from $20
billion in 2024 to $17.5 billion in 2025. Meanwhile gross capital
expenditures, a significant expense for Intel in recent years as the company
has built up its fab network, are projected to drop from $25 billion to $27
billion for 2024, to somewhere between $20 billion and $23 billion in 2025.
Compared to Intel's previous plans for capital expenditures, this would
reduce those costs by around 20%. And finally, the company is expecting to
save $1 billion on the cost of sales in 2025.

Intel 2025 Spending Cuts 2024 Projected Spending 2025 Projected Spending
Projected Reduction Operating Expenses
(R&D, Marketing, General, & Admin) $20B $17.5B $2.5B Capital Expenditures
$25B - $27B $20B - $23B $2B - $7B Cost of Sales N/A $1B Savings $1B

Separately, in Intel's email to its employees, Gelsinger outlined that these
cuts will also require simplifying Intel's product portfolio, as well as the
company itself. The six key priorities for Intel will include cutting
underperforming product lines, and cutting back Intel's investment in new
products to "fewer, more impactful projects". Meanwhile on the administrative
side of efforts, Intel is looking to eliminate redundancies and overlap
there, as well as stopping non-essential work.

Reducing Operational Costs: We will drive companywide operational and cost
efficiencies, including the cost savings and head count reductions mentioned
above. Simplifying Our Portfolio: We will complete actions this month to
simplify our businesses. Each business unit is conducting a portfolio review
and identifying underperforming products. We are also integrating key
software assets into our business units so we accelerate our shift to systems-
based solutions. And we will narrow our incubation focus on fewer, more
impactful projects. Eliminating Complexity: We will reduce layers, eliminate
overlapping areas of responsibility, stop non-essential work, and foster a
culture of greater ownership and accountability. For example, we will
consolidate Customer Success into the Sales, Marketing and Communications
Group to streamline our go-to-market motions. Reducing Capital and Other
Costs: With the completion of our historic five-nodes-in-four-years roadmap
clearly in sight, we will review all active projects and equipment so we
begin to shift our focus toward capital efficiency and more normalized
spending levels. This will reduce our 2024 capital expenditures by more than
20%, and we plan to reduce our non-variable cost of goods sold by roughly $1
billion in 2025. Suspending Our Dividend: We will suspend our stock dividend
beginning next quarter to prioritize investments in the business and drive
more sustained profitability. Maintaining Growth Investments: Our IDM2.0
strategy is unchanged. Having fought hard to reestablish our innovation
engine, we will maintain the key investments in our process technology and
core product leadership.

The bulk of these cuts, in turn, will eventually come down to layoffs. As
previously noted, Intel is planning to cut about 15% of its workforce. Just
how many layoffs this will entail remains to be seen; Gelsinger's letter puts
it at roughly 15,000 employees, while Intel's most recent published headcount
would put this figure at closer to 17,000 employees.

Whatever the number, Intel is expecting to have most of the reductions
completed by the end of this year. The company will be using a combination of
early retirement packages and buy-outs, or what the company terms as "an
application program for voluntary departures."

Intel's investors will be taking a hit, as well. The company's generous
quarterly dividend, a long-time staple of the chipmarker and one of the key
tools to entice long-term investors, will be suspended starting in Q4 of
2024. With Intel losing money over multiple quarters, Intel cannot afford (or
at least, cannot justify) paying out cash in the forms of dividends when that
money could be getting invested in the company itself. Though as the long-
term health of the company is still reliant on offering dividends, Intel says
that the suspension will be temporary, as the company reiterated its "long-
term commitment to a competitive dividend as cash flows improve to
sustainably higher levels." For Q2 2024, Intel paid out $0.125/share in
dividends, or a total of roughly $0.5B.

Ultimately, the message coming from Intel today is that it is continuing (if
not accelerating) its plans to slim down the company; to focus on a few areas
of core competencies that suit the company's abilities and its financial
goals. Intel is throwing everything behind its IDM 2.0 initiative to regain
process leadership and serve as a world-class contract foundry, and even with
Intel's planned spending cuts for 2025, that initiative will continue to move
forward as planned.

On that note, cheering up investors in what's otherwise a brutal report from
the company, Intel revealed that they've achieved another set of key
milestones with their in-development 18A process. The company released the
1.0 process design kit (PDK) to customers last month, and Intel has
successfully powered-on their first Panther Lake and Clearwater Forest chips.
18A remains on track to be "manufacturing-ready" by the end of this year,
with Intel looking to start wafer production in the first half of 2025. 18A
remains a make-or-break technology for Intel Foundry, and the company as a
whole, as this is the node that Intel expects to return them to process
leadership - and from which they can improve upon to continue that
leadership.

Intel Foundry Roadmap (February 2024)

Sources: Intel Q2'24 Earnings, Intel Staff Letter

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