Intel's Layoffs and Losses: What's Happening
What's up with Intel?
Intel Corporation's total revenue for 2023 decreased by 14% compared to 2022 and amounted to $54.2 billion. Net income fell almost five times – to $ 1.7 billion. This year, according to the head of the corporation Pat Gelsinger, Intel's business may incur even larger operating losses. So much so that even according to optimistic forecasts, it will not be possible to break even until 2027. The company's performance was affected by poor management decisions, including the refusal to purchase modern lithographs in 2023.
The main mistakes were made not by Patrick Gelsinger, but by his predecessors. For example, the previous CEO of Intel, Robert Swan allowed the departure of one of the corporation's largest clients, Apple, and also under his leadership, Intel lost its leadership in mastering new technological processes. Even earlier, in 2006, Intel sold assets related to the ARM XScale processor and missed the opportunity to earn money in the multi-billion dollar smartphone market. And now it's time to “gather stones”, that is, to correct old and new mistakes.
The irony is that Pat Gelsinger was senior vice president and general manager of the Digital Enterprise Group, responsible for enterprise products, until 2009. The company was at the height of its business power, and the flamboyant and charismatic Patrick Gelsinger was expected to take over the corporation, but the current CEO, Paul Otellini, seemed eternal. As a result, Intel lost both of them — Gelsinger left to become president of EMC, and Otellini left the company in 2013.
In 2021, Gelsinger finally became the head of Intel, but now he has to practically save the company. On the decision to seriously change some aspects of the corporation's work stated August 2. The main thing is to reduce operating expenses in order to save the budget. They are going to do this by firing 15% of the staff at once – more than 17,500 employees. They all earn quite a lot, so the savings will be significant.
The layoffs will last until the end of 2024. The company currently has a total of about 110,000 employees, excluding some divisions. This is not the first layoff. At the end of 2023, Intel laid off 5% of its staff. At that time, the company employed about 120,000 people.
Intel will also try to cut other expenses. To do this, the company is suspending dividend payments from the fourth quarter of 2024. In total, management hopes to save about $10 billion over five months.
The company will spend the freed-up funds on restoration, new research projects and expansion of production volumes. Intel needs to start mastering new technological processes. In 2024, the most modern processors from Intel are manufactured using the 10-nm technological process. While the corporation's competitors – AMD, Samsung – produce 3- and 5-nm chips. Intel expects to quickly update its own factories and switch to the Intel 18A technological process in 2025, which will be similar to the 1.8-nm technological process. Ambitious, it remains to be implemented.
What else?
Intel also needs money because the current head of the company, Patrick Gelsinger, has planned to gradually transform Intel into a contract chip manufacturer. Previously, the company used a vertical production model: it created chips itself and only for itself. Now Pat Gelsinger believes that the production of chips for third-party developers can be profitable. However, for now this division brings in only a couple of percent of revenue, but at the same time requires huge expenses to establish a sales system and customer service. At the same time, in 2023, the media reported that Intel ordered its top processors from partners, including TSMC.
In general, there is a difficult process of restructuring from a vertical production model, which requires a lot of funds. The corporation is forced to save on literally everything, including the creation of new factories. In the spring of 2024, Intel suspended the construction of its plant in Israel. Its cost is about $ 25 billion. The project is frozen for an indefinite period. Intel itself did not officially announce this incident – the pause became known from the corporation's partners.
True, the pause may not be long. About two years ago, Intel already had something similar. Then the corporation suspended the construction of a factory in Arizona, USA. Its cost was about the same as the construction in Israel – $30 billion. But the money was quickly received from the corporation's partners, after which the construction was resumed.
In total, the company plans to spend $100 billion on the creation and expansion of factories around the world. Part of this amount, $19.5 billion, the corporation plans to receive in the form of grants from the United States, and another $25 billion in tax breaks. In addition, the company's plan involves updating production sites in New Mexico and Oregon and expanding operations in Arizona. Gelsinger is trying to lure experienced market experts to his corporation's staff. In mid-summer 2024, the company acquired Naga Chandrasekaran. Previously, he worked for Micron Technology, another American manufacturer of microelectronics, mainly memory.
About $30 billion will be spent on purchasing construction materials. The rest will be spent on purchasing lithographs and other chip manufacturing equipment from ASML, Tokyo Electron, Applied Materials, and KLA. It takes a lot of money, so Intel is trying to save on everything, including employees.
Intel's global plan may not work if the electronics design and manufacturing market experiences sudden changes. And they may well be triggered by Intel's own problems. The company's shares have already fallen 30% amid significant cuts, wiping out about $24 billion in market value for Intel. This event may well trigger a chain reaction of declines in the shares of other electronics companies.
