Intel plans thousands of cuts due to PC slowdown

(Bloomberg) — Intel Corp . is planning a significant reduction in headcount, likely in the thousands, to cut costs and cope with a booming PC market, according to people with knowledge of the situation.

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The layoffs will be announced as early as this month, and the company plans to make the move around the same time as its third-quarter earnings report on Oct. 27, said the people, who asked not to be identified because the discussions are private. . The chip manufacturer had 113,700 employees as of July.

Some divisions, including Intel’s sales and marketing group, could see cuts affecting about 20% of employees, according to the people.

Intel is facing a sharp decline in demand for PC processors, its core business, and has struggled to win back market share lost to rivals such as Advanced Micro Devices Inc. In July, the company warned that sales in 2022 would be about $1[ads1]1 billion lower than the. previously expected. Analysts are predicting a third-quarter revenue decline of about 15%. And Intel’s once-enviable margins have shrunk: They’re about 15 percentage points lower than historical figures of around 60%.

During the second quarter earnings call, Intel acknowledged that it could make changes to improve profits. “We are also lowering core expenses in calendar year 2022 and will look to implement additional measures in the second half of the year,” CEO Pat Gelsinger said at the time.

Intel, based in Santa Clara, Calif., declined to comment on the layoffs.

Intel’s last major wave of layoffs occurred in 2016, when it trimmed about 12,000 jobs, or 11% of its total. The company has made minor cuts since then, closing several divisions, including cellular modems and drone units. Like many companies in the technology industry, Intel froze hiring earlier this year as market conditions worsened and fears of a recession grew.

The latest cuts are likely intended to reduce Intel’s fixed costs, possibly by around 10% to 15%, Bloomberg Intelligence analyst Mandeep Singh said in a research note. He estimates that these costs range from at least $25 billion to $30 billion.

Gelsinger took the helm at Intel last year and has worked to restore the company’s reputation as a Silicon Valley legend. But even before the PC downturn there was an uphill battle. Intel lost its long-held technological edge, and its own executives acknowledge that the company’s innovation culture withered in recent years.

Now, a broader downturn is adding to these challenges. Intel’s PC, data center and artificial intelligence groups are struggling with a decline in technology spending, weighing on revenue and profits.

PC sales fell 15% in the third quarter from a year earlier, according to IDC. HP Inc., Dell Technologies Inc and Lenovo Group Ltd., which use Intel processors in their notebook and desktop PCs, have all seen sharp declines.

With PC prices stagnating and demand weakening, Intel may also need to pursue a dividend cut to offset cash flow headwinds, Singh said. But Intel’s plan to sell shares of its Mobileye self-driving technology business in an IPO could ease those concerns, he said.

It’s a particularly difficult moment for Intel to make cuts. The company lobbied heavily for a $52 billion chip stimulus bill this year, pledging to expand its manufacturing in the US. Gelsinger plans a construction boom that includes bringing the world’s largest chipmaking hub to Ohio.

At the same time, the company is under intense pressure from investors to strengthen profits. The company’s shares have fallen more than 50% in 2022, with a 20% drop in the past month alone.

The stock fell 0.6% to $25.04 in New York on Tuesday.

US tensions with China have also confused the future of the chip industry. The Biden administration announced new export restrictions on Friday, limiting what American technology companies can sell to the Asian nation. The news sent chipmaker shares tumbling again, with Intel falling 5.4% on the day.

Intel has tried to regain a foothold in the industry by releasing new PC processors and graphics semiconductors. A key part of the strategy is to sell more chips to the data center market, where rivals AMD and Nvidia Corp. has made inroads. On Tuesday, Google 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 leaner company.

David Zinsner, Intel’s chief financial officer, said after the company’s latest quarterly report that “there is great opportunity for Intel to improve and deliver maximum output per dollar.” The chipmaker expected to see restructuring charges in the third quarter, he said, signaling cuts were looming.

Some chipmakers, including Nvidia and Micron Technology Inc., have said they are staying away from layoffs for now. But other technology companies, such as Oracle Corp. and Arm Ltd., have already cut jobs.

(Updates with analyst report starting in eighth paragraph.)

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