Intel is cutting more jobs as CEO Tan tries to fix manufacturing missteps
The job cuts - a majority of which have been completed already - are part of an effort by Tan since he took the helm in March to turn around the storied U.S. chipmaker. Intel has divested businesses, laid off employees and redirected resources.
The company has underperformed due to years of management blunders. Intel has virtually no foothold in the booming AI chip industry that is dominated by Nvidia (NVDA.O), opens new tab, and its longtime rival AMD (AMD.O), opens new tab has been gaining share in Intel's mainstay personal computer and server semiconductor markets. Its ambitious and costly plan for a chip contracting business that rivals that of Taiwan's TSMC (2330.TW), opens new tab has failed to take off.
But Tan on Thursday signaled that he had taken charge of the company and was trying to wrest it back from what he viewed as previous missteps.
"There are no more blank checks," Tan wrote in a memo to employees. "Every investment must make economic sense. We will build what our customers need, when they need it, and earn their trust through consistent execution."
But shares still fell 4.5% in extended trading after the company forecast steeper third-quarter losses than Wall Street estimated. Tan also told analysts on a conference call that he believes Intel's so-called 18A manufacturing process - in which his predecessor Pat Gelsinger had deeply invested - could generate a reasonable return only if it is used for Intel's own products. Reuters reported earlier this month that Tan is debating whether to quit offering that technology to external customers.
As part of the job cuts, Intel attempted to take a 'surgical' approach and remove layers of middle management, finance chief David Zinsner told Reuters. 'We took out about 50% of the layers of the company,' he said.
The company is cutting its workforce by 15% from 96,400 that it reported at the end of June. It plans to further reduce headcount to 75,000 by the end of the year, down 22% from the end of 2024, which will be through attrition and "other means," according to the company.
"They may have overspent on 18A ... but I think this is the painted picture of a new fiscally disciplined base that they're going to go from here. I think that's the right approach," said Ben Bajarin, CEO of tech market analysis firm Creative Strategies.
In the memo to employees, Tan said Intel is changing its strategy for building manufacturing capacity and now plans to build factories only when the demand for its chips is there. Previously, the company had built factories ahead of demand in the U.S. and elsewhere.
Intel is now working to bring its 18A technology to high volume. Tan said in the memo that the company plans to take a disciplined approach to investments in the next-generation 14A manufacturing process, and in its quarterly securities filing, Intel said that if it fails to find a significant external customer for 14A, it may be forced to exit the chip manufacturing business.
Tan wrote the company now plans to slow construction work on new factories in Ohio and halt planned factories in Poland and Germany, and consolidate chip packaging operations in Costa Rica with its other packaging operations in Vietnam and Malaysia.
"I do not subscribe to the belief that if you build it, they will come," Tan said on the call with analysts. He later added that he will personally review and approve each of Intel's major chip designs.
Intel said it expects a third-quarter loss of 24 cents per share, steeper than estimates of losses of 18 cents per share, according to data from LSEG. It expects revenue of $12.6 billion to $13.6 billion for the September quarter, with a midpoint of $13.1 billion that was higher than analysts' average estimate of $12.65 billion.
While semiconductors are currently exempt from U.S. President Donald Trump's sweeping global tariffs, Intel and its fellow chipmakers are facing customers who are reluctant about spending commitments amid widespread macroeconomic uncertainty. Customers have pulled shipments forward to the first half of the year amid trade uncertainty.
Intel's second-quarter revenue for the period ended June 28 was flat at $12.9 billion, snapping a four-quarter streak of sales declines. The result beat estimates of $11.92 billion.
Intel said job cuts contributed to restructuring costs of $1.9 billion in the second quarter.
It recorded June quarter adjusted losses of 10 cents per share, compared with estimates of a profit of 1 cent per share. Its unadjusted loss was 67 cents per share in the second quarter, steeper than analyst estimates of a 26-cent-per-share loss.
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