The Intel chipmaker’s major restructuring effort includes halting dividends and slashing expenses
Intel to Lay Off 17,500 Employees Amidst Turnaround Efforts
In a significant restructuring move, Intel will lay off more than 17,000 employees and suspend its dividend starting in Q4 2024. The company, which employed 116,500 people as of June 29, aims to turn around its struggling manufacturing sector. The layoffs, accounting for roughly 15% of Intel’s workforce, will be completed by the end of 2024.
Intel also forecasts third-quarter revenue below estimates due to reduced spending on traditional data center semiconductors and a competitive edge in AI chips. Shares of Intel, based in Santa Clara, California, dropped 20% in extended trade, impacting its market value by over $24 billion. This follows a 7% drop in the stock on Thursday, mirroring a broader decline in US chip stocks after a conservative forecast from Arm Holdings.
CEO’s Strategy and Financial Adjustments
CEO Pat Gelsinger emphasized the need for a leaner headquarters and more field support for customers. He also noted that suspending dividends would allow Intel to focus on its balance sheet and debt reduction. The company plans to cut operating expenses and reduce capital expenditure by over $10 billion in 2025.
Michael Schulman, Chief Investment Officer at Running Point Capital, questioned whether these measures would be sufficient, given that Gelsinger has been in charge for over three years. Schulman noted that eliminating the dividend might pressure Intel’s shares further, excluding the company from dividend-focused ETFs and indices.
Future Outlook and Competitive Position
Intel’s investment in manufacturing capacity and its push to compete with Taiwanese chipmaker TSMC are central to its strategy. The company’s adoption of extreme ultraviolet (EUV) lithography tools, though more expensive, aims to enhance chip performance. Analysts anticipate that Intel’s efforts to revamp its foundry business will take years, with TSMC likely maintaining its market lead in the near future.
Revenue and Dividend Changes
The company expects third-quarter revenue between $12.5 billion and $13.5 billion, falling short of analysts’ estimate of $14.35 billion. Intel had previously declared a quarterly dividend of 12.5 cents per share, but future payments are now on hold as part of the cost-cutting measures.