Intel shares slid as much as 20% in extended trading on Thursday after the chipmaker said it would lay off over 15% of its employees as part of a $10 billion cost-reduction plan. Intel also reported a lighter earnings results than analysts had envisioned. The Intel Job cuts would affect some 17,500 people,
Intel has also suspended its dividend starting in the Q4 of 2024 as the chipmaker pursues a turnaround focused on its money-losing manufacturing business. It will also lower full-year capital expenditures by over 20%.
Intel Q2 earnings results
Here’s how the company did, compared to LSEG analyst estimates:
Intel’s earnings per share: 2 cents adjusted vs. 10 cents expected
Intel’s revenue: $12.83 billion vs. $12.94 billion expected
The revenue of Intel declined 1% year over year in the fiscal second quarter, which ended on June 29, according to a statement. The company swung to a $1.61 billion net loss, or 38 cents per share, from net income of $1.48 billion, or 35 cents per share, in the year-earlier period.
Intel’s revenue loss
For the fiscal Q3, Intel called for an adjusted net loss of 3 cents per share on $12.5 billion to $13.5 billion in revenue. LSEG analysts expected adjusted net earnings of 31 cents per share on $14.35 billion in revenue.
Consume and commercial spending has weakened, particularly in China, and a continued emphasis on cloud-based servers for AI have led to Intel to reduce its 2024 total addressable market.
Why revenue loss?
A decision to more rapidly produce Core Ultra PC chips that can handle artificial intelligence workloads contributed to the loss, CEO Pat Gelsinger said on a conference call with analysts.
“We previously signaled that our investments to be fine and drive the AI PC category would pressure margins in the near-term,” Gelsinger said. “We believe the trade-offs are worth it. The AI PC will grow from less than 10% of the market today to greater than 50% in 2026.”
Additionally, Intel decided to more quickly move Intel 4 and 3 chip wafers from a plant in Oregon to one in Ireland, resulting in higher costs as per Dave Zinsser, the company’s finance chief. This along with the higher pricing made the difference.
AMD, Qualcomm and other companies have been working to take market share from Intel.
Intel’s AI-friendly PC chips
Intel’s Client Computing Group that makes PC chips contributed $7.41 billion in revenue, up 9% and right around the $7.42 billion consensus among analysts surveyed by StreetAccount. The company said results tied to AI-friendly PC chips exceeded internal expectations and were on a path for over 40 million unit shipments in 2024.
The Data Center and AI unit posted $3.05 billion in revenue. The result was down 3% and lower than the $3.14 billion StreetAccount consensus.
Intel’s forecast
During the fiscal Q2, Intel announced that Apollo would invest $11 billion in a joint venture around a chip manufacturing plant in Ireland. The company also introduced Xeon 6 server processors, along with a Gaudi 3 accelerator for AI tasks.
In addition, Intel disclosed in May that the U.S. Commerce Department was revoking export licenses for consumer items to a customer in China, widely believed to be Huawei. Intel said fiscal second-quarter revenue would still be in its previously announced range of $12.5 billion to $13.5 billion, but below the middle of the range. Thursday’s outcome did line up with that update.
Intel’s job cut
The jobs cuts at Intel will affect about 15,000 employees, will mainly take place this year, Gelsinger wrote in a memo. It’s the largest of any single job cut listed on Layoffs.fyi, an industry tracker that’s been operating since March 2020.
“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” he wrote. “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low.”
On an adjusted basis, Intel said it expects around $20 billion in cuts this year, $17.5 billion in 2025 and more in 2026.
Intel stock update
Excluding the after-hours drop, Intel stock has lost 42% of its value so far this year, while the S&P 500 index is up almost 14% in the same period. Share price of the Santa Clara, California-based Intel slumped 20% in extended trade, setting the chipmaker up to lose more than $24 billion in market value. The Intel stock had closed down 7% on Thursday, in tandem with a plunge in U.S. chip stocks after a conservative forecast from Arm Holdings on Wednesday.
