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Jobs ax will swing at Intel as PC sales reservoir

Pat Gelsinger, CEO of Intel

Intel is planning a major downsizing, likely thousands, to cut costs and cope with a booming PC market, according to people with knowledge of the situation.

The layoffs will be announced as early as this month, with the company planning to move around the same time as its third-quarter earnings report on October 27, said the people, who asked not to be identified because the deliberations are private. The chipmaker had 113,700 employees in July.

Some divisions, including Intel’s sales and marketing group, could see cuts affecting around 20% of staff, the sources say.

Intel is facing a sharp drop in demand for PC processors, its core business, and is struggling to regain market share lost to rivals like AMD. In July, the company warned that 2022 sales would be about $11 billion lower than forecast. Analysts expect revenue to decline about 15% in the third quarter. And Intel’s once-enviable margins have shrunk: they’re about 15 percentage points lower than historic figures of around 60%.

During its second-quarter earnings call, Intel acknowledged that it could make changes to improve earnings. “We are also reducing base spending in calendar year 2022 and will look to take additional measures in the second half of the year,” CEO Pat Gelsinger said at the time.

Santa Clara, Calif.-based Intel declined to comment on the layoffs.

Cups

Intel’s last big wave of layoffs came in 2016, when it cut about 12,000 jobs, or 11% of its total. The company has made smaller cuts since then and closed several divisions, including its cellular modems and drone units. Like many companies in the tech industry, Intel also froze hiring earlier this year when market conditions deteriorated and fears of a recession grew.

The latest cuts are likely aimed at reducing Intel’s fixed costs, perhaps by around 10-15%, Bloomberg Intelligence analyst Mandeep Singh said in a research note. He estimates that these costs range from at least US$25 billion to US$30 billion.

Gelsinger took over as head of Intel last year and has worked to restore the company’s reputation as a Silicon Valley legend. But even before the PC crisis, it was a tough fight. Intel has lost its long-standing technology lead, and its own executives acknowledge that the company’s culture of innovation has weakened in recent years.

Today, a broader downturn is adding to these challenges. Intel’s PC, data center and artificial intelligence groups are facing a drop in technology spending, which is weighing on revenue and profits.

PC sales fell 15% in the third quarter from a year earlier, according to IDC. HP, Dell Technologies and Lenovo, which use Intel’s processors in their laptops and desktops, all suffered steep declines.

With PC prices stagnating and demand weakening, Intel may also need to pursue a dividend cut to offset cash flow headwinds, Singh said. But Intel’s plan to sell shares of its Mobileye self-driving technology business in an initial public offering could allay those concerns, he said.

This is a particularly awkward time for Intel to make cuts. The company has been pushing for a $52 billion chip boost bill this year, promising to expand manufacturing in the United States. Gelsinger predicts a construction boom that includes moving the world’s largest chip manufacturing center to Ohio.

At the same time, the company is under intense pressure from investors to shore up its earnings. Shares of the company have fallen more than 50% in 2022, with a 20% plunge in the past month alone.

Shares slid 0.6% to $25.04 in New York on Tuesday.

US tensions with China have also clouded the future of the chip industry. The Joe Biden administration announced new export restrictions on Friday, limiting what U.S. tech companies can sell to the Asian nation. The news sent chipmaker stocks plummeting again, with Intel dropping 5.4% on the day.

Intel attempted to regain a foothold in the industry by releasing new PC processors and graphics semiconductors. A key part of its strategy is to sell more chips in the data center market, where rivals AMD and Nvidia have made inroads. On Tuesday, Google unveiled new Intel-powered technology for its server farms that will help speed up artificial intelligence tasks.

Read: Intel unveils new chips as it continues its comeback

Intel is now looking to pursue these goals as a lean company.

David Zinsner, Intel’s chief financial officer, said after the company’s latest quarterly report that “there are great opportunities for Intel to improve and deliver maximum output per dollar.” The chipmaker expects to see restructuring charges in the third quarter, he said, signaling that cuts are looming.

Read: Intel will raise chip prices – by more than 20% in some cases

Some chipmakers, including Nvidia and Micron Technology, have said they are avoiding layoffs for now. But other tech companies, such as Oracle and ARM, have already cut jobs. — Mark Gurman and Debby Wu, (c) 2022 Bloomberg LP

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