US semiconductor giant Intel lays off 15% of its employees to cut costs

Intel, which has lagged behind its competitors in chips suited to generative artificial intelligence (AI), announced a major social plan on Thursday to reduce its costs by $10 billion, laying off more than 15% of its staff by the end of the year.

The American semiconductor giant had nearly 125,000 employees at the end of 2023, so around 18,000 people are expected to lose their jobs.

The group achieved 12.8 billion dollars of turnover in the second quarter, less than expected by analysts and down 1% over a year.

Above all, it posted a net loss of $1.6 billion, compared to a net profit of $1.5 billion a year ago.

It also announced that it would not pay a dividend at the end of the year.

Its shares fell more than 19% in electronic trading after the close of trading on the New York Stock Exchange.

“Our financial performance was disappointing in the second quarter, even though we achieved key technology milestones,” Intel CEO Pat Gelsinger said in the earnings release.

“Headwinds”

The company faced “headwinds” in the second quarter that hampered production of components for the next generation of AI-enabled computers, according to Chief Financial Officer David Zinsner.

“By orchestrating cost reduction, we are taking proactive steps to improve our profits,” he said.

Intel plans to cut its capital spending by more than 20% for the full year, to between $25 billion and $27 billion.

The cost-cutting plan “may support its finances in the short term, but this measure is not enough to redefine its position in the evolving chip market,” said Jacob Bourne, an analyst at Emarketer.

Intel’s competitors, such as American semiconductor companies Nvidia and AMD, and Taiwan’s TSMC, which makes cutting-edge chips, are capitalizing on the wave of generative AI launched by OpenAI and its ChatGPT platform in late 2022.

Because demand from giants like Microsoft and Google, among others, for these ultra-sophisticated components, necessary for the operation of this technology, has exploded.

“Critical moment”

In an effort to reduce its dependence on Asia, the United States is spending tens of billions of dollars to boost local production of semiconductors.

And Intel is one of the beneficiaries. The company has announced the construction of new production capacities in several American states.

But it has fallen behind in the most expensive and in-demand chips right now, the ones suited to the servers on which generative AI models are trained.

So it’s betting on components for devices with new AI capabilities, including new laptops unveiled this year by HP, Microsoft and others.

The California-based company “is at a critical juncture where it is leveraging U.S. investment in domestic manufacturing and increasing global demand for AI chips to establish a presence in chip manufacturing,” Bourne said.

“Its ability to successfully execute its foundry strategy will be crucial to determining whether it can transform itself into a true rival to TSMC,” he adds.

For the third quarter, Intel expects revenue of between $12.5 billion and $13.5 billion.

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