Intel has announced a tidal wave of layoffs in a move set to cut the company’s workforce by 15%, or 15,000 roles, citing poor returns on AI in a memo sent to employees.
CEO Pat Gelsinger said the move was part of a cost-cutting mission in response to sluggish revenue growth and the firm’s inability to unlock financial benefits from the generative AI trend.
“Simply put, we must 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’ve yet to fully benefit from powerful trends, like AI,” Gelsinger said.
He added that Intel’s costs are too high and its margins too low, with “bolder actions” needed to address this disconnect, particularly considering the firm's financial outlook after a worse-than-expected earnings call.
The firm plans to deliver cost savings of $10 billion in the next year and is planning on completing the round of layoffs by the beginning of 2025 to achieve this aim.
Gelsinger didn’t shirk on the specifics, explaining in the memo that the business had taken a “clean-sheet view” of its strategy following the implementation of a new operating model. This ultimately revealed that Intel’s cost structure is “not competitive.”
He cited the firm’s areas of focus moving forward, which include the reduction of operating costs, the simplification of Intel’s portfolio, the elimination of complexity between departmental overlaps, and the suspension of dividends.
“This is painful news for me to share. I know it will be even more difficult for you to read,” Gelsinger added. “These decisions have challenged me to my core, and this is the hardest thing I’ve done in my career.”
The firm’s next steps include the announcement of a “companywide enhanced retirement offering” for those eligible and an “application program for voluntary departures.”
Intel's “disappointing” earnings outlook
Intel released its Q2 2024 results just prior to the circulation of the memo and it included some concerning figures.
It reported $12.8 billion in profit, down 1% year-on-year and missing out on some analyst expectations. Gelsinger described the results as “disappointing” even as the company hit key milestones.
This comes in contrast to rival firms such as Nvidia which has seen huge profits from AI over the last few quarters. The firm recorded a profit of $26 billion in Q1 2024, an 18% increase year-on-year.
Initiatives that transform how manufacturers approach business
That being said, Scott Constable, Alliance Director at data center infrastructure specialists Vesper Technologies, told ITPro that Intel’s Q2 earnings are not as worrying as they seem.
“Every cloud has its silver lining. Despite how Intel’s Q2 earnings may appear, industry observers are far more buoyant about its next few quarters,” he said, elaborating that there is a strong appetite for the firm’s products.
