(Bloomberg) — Intel is planning big staff cuts, likely numbering in the thousands, to cut costs and deal with the faltering PC market, according to people familiar with the situation.
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The layoffs will be announced early this month, as the company plans to take the move around the same time as its third-quarter earnings report on October 27, said the people, who requested anonymity because the deliberations are private. The chip maker had 113,700 employees as of July.
Some divisions, including Intel’s sales and marketing group, may see cuts affecting about 20% of employees, according to the people.
Faced with a sharp drop in demand for computer processors, its core business, Intel is struggling to regain market share it lost to competitors such as Advanced Micro Devices Inc. In July, the company warned that 2022 sales would be about $11 billion less than they were. It was previously expected. Analysts expect a decline in revenue in the third quarter of about 15%. Intel’s once-enviable margins have dwindled: they are about 15 percentage points narrower than historical figures of about 60%.
During the second-quarter earnings call, Intel acknowledged that it could make changes to improve earnings. “We are also working to reduce core expenditures in calendar year 2022 and will look to take additional action in the second half of the year,” CEO Pat Gelsinger said at the time.
Intel, based in Santa Clara, California, declined to comment on the layoffs.
Intel’s last big wave of layoffs occurred in 2016, when it cut about 12,000 jobs, or 11% of its total. The company has since made smaller cuts and closed several divisions, including cellular modems and drone units. Like many companies in the tech industry, Intel also froze hiring earlier this year, when market conditions soured and fears of a recession rose.
The latest cuts are likely aimed at reducing Intel’s fixed costs, perhaps by about 10% to 15%, Mandeep Singh, an analyst at Bloomberg Intelligence, said in a research note. It is estimated that these costs range from at least $25 billion to $30 billion.
Gelsinger took over at Intel last year and worked to restore the company’s reputation as a Silicon Valley legend. But even before the PC crash, it was an uphill battle. Intel has lost its long-standing technological edge, and its executives acknowledge that the company’s culture of innovation has fizzled out in recent years.
Now the broader slowdown is adding to those challenges. Intel’s computers, data center and AI groups are competing as technology spending declines, affecting revenue and profits.
PC sales fell 15% in the third quarter from a year earlier, according to IDC. Both HP Inc. and Dell Technologies Inc and Lenovo Group Ltd. , which uses Intel processors in laptops and desktop computers, from sharp declines.
With stagnating PC prices and weak demand, Intel may also need to continue cutting dividends to offset cash flow headwinds, Singh said. But Intel’s plan to sell shares of the self-driving technology company Mobileye in an initial public offering may allay those concerns, he said.
It’s a particularly awkward moment for Intel to make cuts. The company lobbied hard for a $52 billion stimulus bill for chips this year, and has pledged to expand its manufacturing in the United States. Gelsinger plans a construction boom that includes bringing the world’s largest chipmaking center to Ohio.
At the same time, the company is under intense pressure from investors to increase its profits. The company’s shares are down more than 50% in 2022, with a 20% drop in the last month alone.
Shares fell 0.6 percent to $25.04 in New York on Tuesday.
US tensions with China have also cast a shadow over the future of the chip industry. The Biden administration announced new export restrictions on Friday, restricting what US technology companies can sell to the Asian country. This news sent chipset stocks down again, with Intel shares down 5.4% on the day.
Intel is trying to regain its place in the industry by launching new computer processors and graphics semiconductors. A key part of its strategy is to sell more chips to the data center market, where competitors AMD and Nvidia Corp have made headway. Google on Tuesday unveiled new Intel-powered technology for its server farms that will help speed up artificial intelligence tasks.
Intel is now looking to pursue these goals as a smaller company.
“There are great opportunities for Intel to improve and deliver maximum production per dollar,” David Zinsner, Intel’s chief financial officer, said after the company’s latest quarterly report. He said the chipmaker expects to see restructuring fees in the third quarter, which indicates cutbacks are on the horizon.
Some chip makers, including Nvidia and Micron Technology Inc. They are avoiding layoffs for the time being. But other technology companies, such as Oracle Corp. and Arm Ltd. It has already cut jobs.
(Updates with the analyst report begin in the eighth paragraph.)
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