Intel is currently undergoing a major reorganization that will decrease more than 15,000 jobs, which is approximately 15% of its overall workforce. This action is part of an extensive $10 billion cost-cutting initiative that aims to be fully implemented by 2025. The layoffs are motivated by the company’s necessity to decrease research and development as well as marketing costs by several billion dollars each year until 2026, alongside a 20% cut in capital expenditures for this year. Additionally, Intel intends to halt non-essential projects and evaluate all ongoing initiatives to eliminate unnecessary expenses.
“This is painful news for me to share. I know it will be even more difficult for you to read,” reads part of a memo from Intel CEO Pat Gelsinger to staff, which you can also read in full at the bottom of this post.
The financial performance of Intel has been disappointing, as reported by Pat Gelsinger. In Q2 2024, the company suffered a loss of $1.6 billion, a significant increase from the $437 million loss in the previous quarter.
Revenue for the quarter decreased only 1% a year-over-year amounting to $12.8 billion. Despite all the challenges, Intel’s core products remain profitable, although its Foundry business continues to incur substantial losses. In 2023, the Foundry segment alone reported $7 billion in losses, with an additional $2.8 billion loss this quarter.
“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones,” admitted Gelsinger in the company’s press release. “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI,” he writes in his employee memo.
Intel faces fierce competition, especially in the AI and graphics sectors. While competitors like Nvidia dominate the AI server chip market, Intel has struggled quite a bit to make a significant impact. Additionally, Intel’s recent efforts in graphics and its response to the rise of Arm-based chips, which offer better battery life, have yet to yield substantial results. The company’s reliance on external manufacturing, particularly from TSMC, underscores its current challenges in advancing its semiconductor technology independently.
“The good news is the follow-on product, Panther Lake, is internally sourced on [Intel’s own process] 18A and has a much-improved cost structure,” says Intel CFO David Zinsner.
Recent developments include Microsoft’s decision to use Qualcomm chips instead of Intel for its latest Surface devices, reflecting a shift away from Intel in the consumer hardware space. Additionally, Intel is grappling with potential defects in two generations of its desktop CPUs, although the company plans to address these issues with a software update rather than a recall.
Looking ahead, Intel’s focus includes the launch of its Lunar Lake AI laptop chip, expected in September, and its successor, Panther Lake, anticipated in the second half of 2025. However, significant benefits from these products are not expected until 2026. Intel’s Granite Rapids Xeon server processors are also poised for competition in the AI chip market.
To manage the layoffs, Intel will offer enhanced retirement packages and voluntary departure options to its employees. The company is suspending its dividend and tightening spending but remains committed to key investments to support its strategic goals and build a robust semiconductor supply chain globally.
