August 1, 2024 Intel has announced a significant downsizing of its workforce, laying off over 15,000 employees as part of a $10 billion cost-saving plan set for 2025. The reduction will affect more than 15 percent of the company’s staff, which currently numbers over 125,000 employees. The layoffs are part of a broader restructuring effort to cut costs and streamline operations in response to ongoing financial challenges.
The company plans to reduce research and development and marketing expenditures by billions annually through 2026. Additionally, capital expenditures will be cut by over 20 percent this year, and Intel will cease “non-essential work.” The restructuring will involve a comprehensive review of all active projects and equipment to ensure cost efficiency.
Intel’s CEO, Pat Gelsinger, acknowledged the difficulty of the decision in a memo to employees, citing disappointing financial performance in the second quarter of 2024, with a loss of $1.6 billion. Gelsinger emphasized the need to align the company’s cost structure with its new operating model and address high costs and low margins.
The layoffs will be accompanied by an enhanced retirement offering for eligible employees and a voluntary departure program. The company aims to complete most of the layoffs by the end of 2024.
The restructuring includes a focus on reducing operational costs, simplifying the portfolio, eliminating complexity, and reducing capital and other costs. Despite the cuts, Intel will maintain core investments to execute its strategy and build a resilient and sustainable semiconductor supply chain in the U.S. and globally. The company is receiving close to $8 billion from the U.S. government to finance these initiatives.
But Intel will have to do more than cut costs to reverse its declining fortunes. The company has recently restructured into two areas of focus, one being its own chip design and marketing and the other a foundry business that could conceivably make chips for any company — including its competitors.
Challenges remain in both regards. On the chip side, it has clearly lost ground as both Microsoft and Apple have moved away from Intel chipsets. That part of the business remains profitable, but it is no longer the leader in advanced chipsets, particularly for AI.
The company also needs to significantly upgrade its facilities and technology to replace its current outdated production facilities, which are the major cause of its overall losses. In the meantime, it is still dependent on Taiwan-based TSMC to meet its production goals, which means that its margins on its own chip sales are much lower than if Intel had its own modern facilities for manufacturing.
All of this will take some time, perhaps years, to turn around the fortunes of the company that once boasted “Intel Inside” on the majority of work and home computers.
