-Intel said on Thursday it would cut more than 15% of its workforce and suspend its dividend starting in the fourth quarter, as the chipmaker seeks a turnaround centered on its loss-making manufacturing business.
Shares of the Santa Clara, California-based company fell 20% in extended trading, causing it to lose more than $24 billion in stock market value.
The stock closed down 7% on Thursday, along with a drop in U.S. chip stocks following a conservative forecast from Arm Holdings on Wednesday.
Most of the job cuts will be completed by the end of 2024, Intel said. The company’s headcount was 124,800 at the end of 2023.
“I need fewer people at headquarters, more people in the field supporting customers,” CEO Pat Gelsinger said in an interview.
The company also laid out plans to cut operating expenses and reduce capital expenditures of more than $10 billion by 2025.
Much of Wall Street’s focus has been on the heavy investments and huge costs incurred by Intel as it builds up its production capacity in an attempt to compete with Taiwan’s TSMC.
Intel’s lagging position in the AI chip market has also caused its shares to fall more than 40% this year as investors lower their expectations for the company’s growth in the booming market.
“A $10 billion cost-cutting plan shows that management is willing to take strong, drastic action to right the ship and resolve problems. But we all ask, ‘is it enough,’ and it’s a bit of a late reaction considering that CEO Gelsinger has been in charge for more than three years?” said Michael Schulman, chief investment officer at Running Point Capital.
As part of its cost reduction plan, Intel expects 2024 capital expenditures to be between $25 billion and $27 billion and is targeting gross capital expenditures of between $20 billion and $23 billion for 2025.
Intel reported capital expenditures of $25.8 billion in 2023, compared to $24.8 billion in 2022. It was $18.7 billion in 2021, when Gelsinger took the helm.
In February last year, the company proposed to deliver annual cost savings of between US$8 billion and US$10 billion by 2025.
“Our goal is to return with the dividend, pay a competitive dividend over time, but now, focusing on the balance sheet, on deleveraging,” said Gelsinger.
“Deleveraging and capital investments are, we believe, a greater return for shareholders at this time than paying dividends.”
In April, Intel declared a quarterly dividend of 12.5 cents per share.
Intel also forecasts revenues below estimates in the third quarter as it faces a pullback in spending on traditional data center chips and increased competition in the personal computer market.
The company expects revenue to be between $12.5 billion and $13.5 billion for the quarter, compared with the average analyst estimate of $14.35 billion, according to LSEG data.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Sriraj Kalluvila)
