Intel to cut jobs in cost-saving drive as PC slump weighs on profits | Job Binary


Intel corp.

INTC 10.66%

has embarked on an aggressive cost-cutting drive and is considering divestments as the chipmaker tries to navigate a sharp decline in PC demand that has weighed on the company’s profits.

Intel reported a 20% drop in third-quarter sales, forecast even weaker revenue for the current quarter and lowered its full-year outlook.

The company is making targeted job cuts and other adjustments, including reducing factory hours, to combat the economic downturn, CEO Pat Gelsinger said in an interview Thursday. He would not specify how many of Intel’s more than 120,000 employees will be affected.

“We are aggressively addressing costs and driving efficiencies across the business,” he said. He added that the company was considering possible divestments, among other moves.

Intel said it was working to cut costs by $3 billion by 2023, growing to $8 billion to $10 billion in annual cost reductions and efficiency gains by the end of 2025. The company took a $664 million restructuring charge to reflect the start of the third quarter. cost reductions

Intel reported sales of $15.3 billion in the third quarter, generating net income of $1.0 billion. It forecast sales of $14 billion to $15 billion for the current quarter, below the $16.3 billion expected by Wall Street, and cut its full-year sales forecast to $64 billion, down from $68 billion. July. Intel said it had cut its capital spending plan from $27 billion to $25 billion this year.

A global chip shortage affects the speed at which we can drive our car off the lot or buy a new laptop. The WSJ visits a manufacturing plant in Singapore to see the complex chip-making process and how one manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

Intel and other chipmakers cashed in on a surge in PC and electronics sales at the start of the pandemic, with a shift to remote work and distance learning. The market has turned around, however, with high inflation, rising interest rates and fears of a recession all weighing on demand.

Tech companies in general are facing some of these pressures, prompting a gloomier-than-expected outlook this week, including Microsoft. corp.

Google parenting alphabet Inc.

and Facebook parent Meta Platforms Inc., have seen their shares drop significantly. The strong dollar has also reduced earnings.

“We expect economic uncertainty to persist into 2023,” Mr. Gelsinger said on an earnings call. “It’s hard to see any good news on the horizon.”

Intel shares fell more than 3% ahead of the results, although they advanced more than 4% in after-market trading after the cost-cutting drive was implemented.

Intel has been one of the worst hit in the chip industry due to its heavy exposure to the PC market. The company posted an unexpected loss in the second quarter as demand for PCs softened. PC shipments are estimated to have contracted 15% in the third quarter, according to International Data Corp. Third quarter sales are down 17%.

Intel, which gets about half of its revenue from its PC chip division, said it expected the PC market to shrink by 15% to 19% this year, a steeper decline than previously forecast, and could shrink further. Next year In the third quarter the sales of that division fell by 17%.

The company is also facing challenges in the data center market. Intel chips dominate server farms that process business and government data, but it is growing against rival Advanced Micro Devices Inc. Intel’s data center division reported a 27% drop in third-quarter revenue to $4.2 billion.

The weakness in Intel’s core business comes as it expands manufacturing and seeks to challenge rivals in Taiwan and South Korea in the race to build the fastest, most cutting-edge chips. But ambition does not come cheap. Mr. Gelsinger, who took over last year, has announced plans to build plants in Arizona, Ohio and Germany, among other expansions. These projects could cost hundreds of millions of dollars together.

“While Intel moves forward with its long-term strategy, it’s now clear that the road to get there was built on a weak foundation, and the now collapsing PCs are likely to return to pre-Covid levels in the near future,” he said. Bernstein Research analysts said in a statement.

One challenge in making the cost cuts, which include staff reductions and efforts to operate plants more cost-effectively, is making them happen while maintaining the company’s strategy of expanding its manufacturing footprint and catching up with rivals, Mr. Gelsinger said.

“It’s really hitting the accelerator and the brakes at the same time,” he said. While Intel will build new factories, it will hold off on buying expensive chip-making equipment until the equipment is actually needed, he said.

Intel hopes to ease the financial burden of its expansion by leveraging incentives in the US and Europe, where governments are trying to attract chip production with financial incentives. Intel also struck a deal with Canada’s Brookfield Asset Management in August to share the costs of expansion in Arizona. Mr. Gelsinger said Thursday that Intel was working on more deals like the one with Brookfield in the near future.

The chip company listed a small part of its self-driving technology unit Mobileye Global Inc.

on Wednesday, listing prices at the top of its target range and raising $861 million. Mr. Gelsinger said Monday at The Wall Street Journal’s Tech Live conference that the purpose of the IPO was not to raise money, but to better position Mobileye for growth. Shares of Mobileye rose 38% in their trading debut.

Signs are starting to emerge that the worsening economic outlook is easing the chip shortage. Mr. Gelsinger announced earlier this year that it could last until 2024.

Chips aimed at markets beyond computers and mobile phones are also starting to show signs of declining demand. Texas Instruments Inc.

on Tuesday it said it saw weakness in its industrial segment, prompting a sell-off in shares. The chip industry has recently been hit by cuts in US sales to China. Rules enacted this month require chip companies to obtain licenses from the Commerce Department before exporting certain chip-making equipment and high-performance artificial intelligence and supercomputing chips to China. Mr. Gelsinger said on Monday that American restrictions were inevitable as geopolitical competition between the countries escalates.

Mr. Gelsinger called the impact of the cuts “pretty small” on Intel.

Chip manufacturer Nvidia corp.

It warned it could lose $400 million in quarterly revenue as a result of the cuts, and manufacturing equipment maker Lam Research corp.

KLA corp.

and Applied Materials Inc.

warned of a potential $1 trillion drop in revenue next year.

Write to Asa Fitch at asa.fitch@wsj.com

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