Intel is set to lay off over 15,000 employees as part of a broader cost-cutting strategy aimed at saving USD 10 billion by 2025. This move comes amid a challenging financial environment for the company, which has seen a significant drop in revenue and profitability.
In a memo to employees, CEO Pat Gelsinger outlined the reasons behind the layoffs and the company’s future strategy. He acknowledged the difficulty of the decision, stating that while it is a tough day for everyone, these changes are essential for Intel to progress and enter a new growth phase. Gelsinger emphasised that Intel’s costs are too high and its margins too low, necessitating bold actions to address these issues, especially given the disappointing financial outlook for the second half of 2024.
Impact on sales and marketing divisions
The layoffs will primarily affect Intel’s sales and marketing divisions, as well as other areas of the company. Gelsinger noted that Intel’s workforce is currently 10 percent larger than it was in 2020, despite annual revenue being about USD 24 billion lower than it was then. This discrepancy has driven the need for a leaner, more agile organisation. The company plans to complete the majority of these layoffs by the end of the year and will also offer voluntary retirement packages and other incentives for employees to leave.
Operational model overhaul
Intel’s restructuring plan includes significant changes to its operational model. The company is separating its product design and chip manufacturing businesses, with the latter being transformed into an independent contract chip manufacturing entity. This reorganisation aims to make Intel’s foundry business competitive with industry giants like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung. The foundry unit is expected to become profitable and achieve substantial margins by 2030.
Additionally, Intel’s financial restructuring is designed to simplify its portfolio, reduce operational costs, and eliminate complexities. The company plans to suspend dividend payments and make other cost-saving measures to streamline operations and focus on core business areas.
In October 2022, Intel implemented a significant round of layoffs and announced plans to reduce costs by USD 8 billion to USD 10 billion annually through 2025. Despite these efforts, the company’s overall size did not decrease substantially.
Intel’s recent struggles stem from multiple strategic and operational challenges. A significant blow came when Microsoft, following Apple’s lead, chose Qualcomm chips over Intel for its latest consumer hardware, including the Surface Laptop and Surface Pro. This move underscores a shift away from Intel’s dominance in the PC market. Additionally, Intel is grappling with potential defects in two generations of desktop CPUs, which the company aims to address through software updates rather than recalls.
Future product developments
On a recent earnings call, CFO David Zinsner acknowledged that Intel’s upcoming AI laptop chip, Lunar Lake, wouldn’t be a game-changer. While Lunar Lake is expected to see significant demand, it’s described as a niche product dependent on external manufacturing by TSMC and necessitates additional memory purchases, limiting its impact on Intel’s financial recovery in 2025.
However, Zinsner expressed optimism about the follow-up product, Panther Lake, which will be internally sourced using Intel’s 18A process, promising a better cost structure. However, substantial benefits from Panther Lake aren’t anticipated until 2026. This timeline suggests that Intel’s path to recovery is slow, requiring not just innovative products but also significant operational and strategic shifts to regain its footing in a rapidly evolving tech landscape.
Intel CEO Pat Gelsinger’s full memo to employees:
Team,
We have moved our All Company Meeting to today, following our earnings call, as we are announcing significant actions to reduce our costs. We plan to deliver $10 billion in cost savings in 2025, and this includes reducing our head count by roughly 15,000 roles, or 15% of our workforce. The majority of these actions will be completed by the end of this year.
This is painful news for me to share. I know it will be even more difficult for you to read. This is an incredibly hard day for Intel as we are making some of the most consequential changes in our company’s history. When we meet in a few hours, I’ll talk about why we’re doing this and what you can expect in the coming weeks. In advance of that, I wanted to preview some of what’s on my mind.
Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate. Our revenues have not grown as expected – and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low. We need bolder actions to address both – particularly given our financial results and outlook for the second half of 2024, which is tougher than previously expected.
These decisions have challenged me to my core, and this is the hardest thing I’ve done in my career. My pledge to you is that we will prioritize a culture of honesty, transparency and respect in the weeks and months to come.
Next week, we’ll announce a companywide enhanced retirement offering for eligible employees and broadly offer an application program for voluntary departures. I believe that how we implement these changes is just as important as the changes themselves, and we will adhere to Intel values throughout this process.
Why Now?
Since introducing our new operating model, we have taken a clean-sheet view of the business and assessed ourselves against benchmarks for high-performing foundries, fabless product companies and corporate functions. This work made it clear our cost structure is not competitive.
For example, our annual revenue in 2020 was about $24 billion higher than it was last year, yet our current workforce is actually 10% larger now than it was then. There are a lot of reasons for this, but it’s not a sustainable path forward.
Beyond our costs, we need to change the way we operate – something many of you shared as part of our Employee Experience Survey. There’s too much complexity, so we need to both automate and simplify processes. It takes too long for decisions to be made, so we need to eliminate bureaucracy. And there’s too much inefficiency in the system, so we need to expedite workflows.
Key Priorities
The actions we are taking will make Intel a leaner, simpler and more agile company. Let me highlight our areas of focus:
Reducing Operational Costs: We will drive companywide operational and cost efficiencies, including the cost savings and head count reductions mentioned above.
Simplifying Our Portfolio: We will complete actions this month to simplify our businesses. Each business unit is conducting a portfolio review and identifying underperforming products. We are also integrating key software assets into our business units so we accelerate our shift to systems-based solutions. And we will narrow our incubation focus on fewer, more impactful projects.
Eliminating Complexity: We will reduce layers, eliminate overlapping areas of responsibility, stop non-essential work, and foster a culture of greater ownership and accountability. For example, we will consolidate Customer Success into the Sales, Marketing and Communications Group to streamline our go-to-market motions.
Reducing Capital and Other Costs: With the completion of our historic five-nodes-in-four-years roadmap clearly in sight, we will review all active projects and equipment so we begin to shift our focus toward capital efficiency and more normalized spending levels. This will reduce our 2024 capital expenditures by more than 20%, and we plan to reduce our non-variable cost of goods sold by roughly $1 billion in 2025.
Suspending Our Dividend: We will suspend our stock dividend beginning next quarter to prioritize investments in the business and drive more sustained profitability.
Maintaining Growth Investments: Our IDM2.0 strategy is unchanged. Having fought hard to reestablish our innovation engine, we will maintain the key investments in our process technology and core product leadership.
The Future
I have no illusions that the path in front of us will be easy. You shouldn’t either. This is a tough day for all of us and there will be more tough days ahead. But as difficult as all of this is, we are making the changes necessary to build on our progress and usher in a new era of growth.
When we began this journey, we set our sights high, knowing that Intel is a place where big ideas are born and the power of what’s possible triumphs over the status quo. After all, our mission is to create world-changing technologies that improve the lives of every person on the planet. And at our best, we have exemplified these ideals more than any company in the world.
To live up to this mission, we must continue to drive our IDM 2.0 strategy, which remains the same: re-establish process technology leadership; invest in at-scale, globally resilient supply chain by expanding manufacturing capacity in the U.S. and EU; become a world-class, leading-edge foundry for internal and external customers; rebuild product portfolio leadership; and deliver AI Everywhere.
Over the past few years, we have rebuilt a sustainable innovation engine that is largely in place and on track. It’s now time to focus on building the sustainable financial engine needed to drive our performance. We must improve our execution, adapt to new market realities and operate as a more agile company. That’s the spirit of the actions we are taking – knowing that the choices we make today, as difficult as they are, will strengthen our ability to serve our customers and grow our business for years to come.
As we take these next steps in our journey, let’s not forget that there has never been a greater need for what we do. The world will increasingly run on silicon – and the world needs a healthy and vibrant Intel. That’s why the work we are doing is so consequential. Not only are we remaking a great company, but we are also creating technology and manufacturing capabilities that will reshape the world for decades to come. And this is something we should never lose sight of as we push forward in pursuit of our goals.
We’ll talk more in a few hours. Please come with your questions so we can have an open and honest discussion about what comes next.
