In a move likely to surprise some taxpayers, Intel announced today that it will cut 15 percent of its workforce, or more than 15,000 jobs, in an effort to recover from disappointing results. In March, the U.S. government said it would give Intel no less than $8.5 billion to help it rebuild its U.S. chip manufacturing operations.
Intel said its revenue fell 1 percent year-over-year in the second quarter. “We do not take this lightly and 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 job cuts will affect areas such as sales, marketing and administrative functions, according to Intel, and will be part of an overall cost-cutting plan. The move follows the 5 percent staff reduction announced by Intel last year.
“That’s a lot of jobs,” Patrick Moorhead, chief analyst at Moor Insights & Strategy, a chip industry consultancy, tells WIRED. But Moorhead says it’s a positive sign that the proposed layoffs appear to be selective rather than widespread. “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 turnaround plan that involves refocusing on making chips for others through its foundry business and moving more quickly toward cutting-edge manufacturing methods. In February, the company said its accelerated roadmap to producing cutting-edge chips was on track and it vowed to become the world’s No. 2 foundry company by 2030. Intel said today it remains on track to meet those goals.
The money Intel received in March is the largest grant awarded by the U.S. government so far through the CHIPS Act, passed in 2022, which will allocate $52.7 billion to repatriate 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 will be eligible for federal loans of up to $11 billion.
The $8.5 billion Intel received will go toward building plants in Arizona, New Mexico, Ohio and Oregon. Intel said the investments it is making in these chip manufacturing plants will create more than 10,000 jobs at the company, 20,000 jobs in construction and thousands more jobs in supporting industries. “The money that Intel has put in is being used to build factories,” said Moorehead of Moor Insights & Strategy. “That’s not going to stop and it does create a lot of jobs.”
After decades of success thanks to the rise of personal computing, Intel failed to capitalize on the smartphone era, ceding market share to chips based on Arm designs. More recently, it has seen Nvidia, a company that started out making graphics chips for gaming, gain prominence thanks to the importance of its hardware for training AI algorithms. Intel has also fallen behind its competitors in the manufacturing sector, TSMC in Taiwan and Samsung in South Korea.
The U.S. government is helping fund Intel’s revival because advanced chips are seen as crucial to economic and geopolitical competitiveness. The pandemic has highlighted the vulnerability of many U.S. industries to a fragile global supply chain. Advanced chips are also crucial to developing artificial intelligence, which is increasingly seen as a national imperative.
Today, the United States makes 12 percent of the world’s semiconductors, compared with 37 percent in the 1990s. Consulting firm McKinsey has predicted that the value of the semiconductor industry will grow by 2020. would 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 an ongoing shift toward AI-centric data center computing. “Before,[Intel]owned the data center,” Hutcheson says. “What we’ve seen over the last few years is the big hyperscalers have been focused on AI and GPUs — full AI data centers.”
Hutcheson says Intel’s overall strategy appears to make sense, but the cuts suggest the company is struggling to address the dysfunction that led it to fall behind in the first place.
