Intel cuts wages, bonuses after disastrous quarterly results

Intel shocked employees Tuesday night by announcing that it is sharply cutting employee compensation after reporting dismal financial results last week.

The chip maker said it will cut base pay for above-mid-level employees by at least 5% starting March 1, according to employees who heard the company’s announcement. Vice presidents will take a 10% cut, several top executives will have 15% haircuts, and CEO Pat Gelsinger will take a 25% reduction in base pay.

Hourly employees will not receive a pay cut and annual bonuses will remain. But Intel is cutting other incentives for all employees effective immediately.

It has suspended merit raises for all employees, suspended quarterly profit-sharing bonuses and employee recognition programs, and cut the 401[ads1](k) pension plan in half, to 2.5%.

“These changes are designed to more significantly impact our executive population and will help support the investments and overall workforce needed to accelerate our transformation and achieve our long-term strategy,” Intel spokesman Will Moss said in a written statement. “We are grateful to our employees for their commitment to Intel and patience during this time, as we know these changes are not easy.”

The website SemiAnalysis first reported Intel’s pay cuts, which follow on the heels of layoffs Intel announced last fall. Intel has not disclosed how many people lost their jobs at Oregon, its largest site, but the company reported more than 500 layoffs in California.

The chip maker sought to eliminate $3 billion in spending amid a sharp drop in demand for microprocessors from PC makers and data center operators through 2022.

Intel’s outlook has continued to darken. The company reported Thursday that sales fell 32% last quarter, and it expects a 40% decline in revenue this quarter compared to the same period a year ago.

“We realize we stumbled, we lost (market) share, we lost momentum,” Gelsinger told Wall Street analysts last week. But he indicated that Intel believes the worst is over: “We feel it has stabilized this year.”

Investment analysts have warned that Intel’s “horrendous” financial results could prompt the company to cut its quarterly dividend, triggering a big selloff in the stock.

Cutting employee compensation could help shore up Intel’s finances without more layoffs, but it could also push workers to leave the company for new jobs. Stock-based compensation represents an important part of Intel’s total pay package, and workers had already struggled with a sharp decline in Intel’s share price.

Intel shares closed Tuesday at $28.26, a little more than half as valuable as they were last spring.

Tuesday’s news is also sure to destroy morale.

Employees said Gelsinger delivered the message in a somber, company-wide address Tuesday night. They said he tried to rally employees by referring to the difficult times Intel went through in the 1980s, before it emerged as the world’s dominant chip maker. He suggested the cuts could be reversed if Intel’s fortunes improve.

Intel lost its pole position in the industry in recent years after a series of production stumbles, and it is far from clear whether Gelsinger can engineer a new comeback. The company has committed to spending billions of dollars on new factories in Arizona, Ohio and Europe, and says it has increased the pace of introducing new generations of its chip technologies.

But rival Taiwan Semiconductor Manufacturing Co. continues to make its own advances, and many other chip companies, including AMD and NVIDIA, contract with TSMC to make their chips. That has allowed them to take market share from Intel even as the broader market cools.

Intel did not say how many workers qualify for the pay cuts, but Intel’s compensation structure is weighted heavily toward the upper ranks. The cuts will have a profound impact in Oregon, home to Intel’s most advanced research and more than 20,000 employees.

In a rough calculation, state economist Josh Lehner estimated Intel’s wage cuts could reduce Oregon’s overall payroll by $150 million to $200 million — about 0.15% of all wages statewide.

— Mike Rogoway | mrogoway@oregonian.com | 503-294-7699

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