In a move likely to raise the eyebrows of some taxpayers, Intel said today that it would cut 15 percent of its workforce, or more than 15,000 jobs, as it struggles to recover from disappointing results. In March, the U.S. government said it would give Intel as much as $8.5 billion to help it rebuild its U.S. chip manufacturing operations.
Intel said revenue fell 1 percent year over year in the second quarter. “We do not take this lightly and we have carefully considered the impact this will have on the Intel family,” CEO Pat Gelsinger said on an earnings call today. “These are difficult but necessary decisions. These reductions do not impact our ability to execute on our plan.”
The layoffs will affect areas such as sales, marketing and administrative functions, Intel said, and would be part of an overall cost-cutting plan. The move follows a 5 percent workforce reduction Intel announced last year. In after-hours trading, the company's shares fell more than 17 percent.
“It’s a lot of jobs,” Patrick Moorhead, principal analyst at Moor Insights & Strategy, a consulting firm for the chip industry, tells WIRED. But Moorhead says it’s a positive sign that the proposed layoffs appear targeted and not across the board. “Layoffs don’t always mean there’s something wrong with a company, but to me it’s all about strategy,” he says.
Intel is struggling to execute a challenging turnaround plan that involves refocusing on making chips for others through its foundry business and moving more quickly to advanced manufacturing methods. In February, the company said its accelerated roadmap for making advanced chips was on track, with a pledge to become the world’s second-best foundry business by 2030. Intel said today it remains on track to meet those goals.
The money Intel received in March is the largest grant the U.S. government has awarded to date through the CHIPS Act, a piece of legislation passed in 2022 that will allocate $52.7 billion to scale back chip manufacturing and invest in chip research and workforce training. The company will also receive tax credits of up to 25 percent on $100 billion in investments and is eligible for up to $11 billion in federal loans.
The $8.5 billion given to Intel will go toward building factories in Arizona, New Mexico, Ohio and Oregon. Intel said the investments it is making in these chip factories will create more than 10,000 jobs at the company, 20,000 construction jobs and thousands of other positions in supporting industries. “The money that Intel has raised is going to build factories,” said Moorehead of Moor Insights & Strategy. “That's not going to stop there, and it's creating a lot of jobs.”
After decades of success thanks to the rise of personal computing, Intel has failed to capitalize on the smartphone era, ceding market share to chips based on Arms designs. More recently, it has seen Nvidia, a company that started out making gaming graphics chips, rise to prominence thanks to the importance of its hardware for training AI algorithms. Intel has also lagged behind its manufacturing rivals, Taiwan’s TSMC and South Korea’s Samsung.
The U.S. government is helping to fund Intel’s reboot because advanced chips are seen as critical to economic and geopolitical competitiveness. The pandemic has exposed how vulnerable many U.S. industries are to a fragile global supply chain. Advanced chips are also critical to building AI, which is increasingly seen as a national imperative.
Today, the U.S. produces 12 percent of the world's semiconductors, compared to 37 percent in the 1990s. Consulting firm McKinsey has predicted that the value of the semiconductor industry will grow impressively this decade, from $600 billion in 2021 to more than $1 trillion in 2030.
Tech Insights analyst Dan Hutcheson says Intel's revenue shortfall reflects a continued shift toward AI-focused data center computing. “It used to be that [Intel] “The owner of the data center,” Hutcheson says. “What we’ve seen over the last few years is the big hyperscalers have focused on AI and GPUs: full-blown AI data centers.”
Hutcheson says Intel's overall strategy seems logical, but the cuts indicate the company is struggling to fix the dysfunction that put it behind in the first place.
