In after-hours trading on Thursday, Intel witnessed a significant drop of up to 20% in its share value. This decline came after the chipmaker revealed its intention to lay off over 15% of its workforce as part of a $10 billion cost-cutting initiative. Additionally, the company reported financial results that fell short of analysts’ expectations.
As a part of the cost reduction plan, Intel disclosed that it would not pay dividends in the fiscal fourth quarter of 2024 and would decrease full-year capital expenditures by more than 20%.
The company’s performance in comparison to LSEG analyst estimates revealed adjusted earnings per share of 2 cents versus the expected 10 cents, and revenue of $12.83 billion compared to the anticipated $12.94 billion.
Intel experienced a 1% decline in revenue year over year in the fiscal second quarter, ending June 29. This resulted in a net loss of $1.61 billion, or 38 cents per share, a shift from a net income of $1.48 billion, or 35 cents per share, during the same period the previous year.
CEO Pat Gelsinger attributed the loss to the accelerated production of Core Ultra PC chips designed for artificial intelligence processes.
Gelsinger affirmed that despite the impact on margins in the short term, advancements in the AI PC category are deemed valuable and are projected to represent over 50% of the market by 2026. The decision to hasten the transfer of Intel 4 and 3 chip wafers to a plant in Ireland is expected to result in increased costs temporarily but lead to higher gross margins in the future, according to Dave Zinsser, the company’s finance head.
Intel faced heightened competition during the quarter, resulting in more aggressive pricing than originally planned. Other companies such as AMD and Qualcomm have been actively vying for market share from Intel.
While the Client Computing Group saw revenue of $7.41 billion, a 9% increase, the Data Center and AI unit experienced a 3% revenue decline, reaching $3.05 billion.
Looking ahead to the fiscal third quarter, Intel forecasted an adjusted net loss of 3 cents per share on revenue between $12.5 billion and $13.5 billion. Meanwhile, LSEG analysts anticipated adjusted net earnings of 31 cents per share based on $14.35 billion in revenue.
Zinsser anticipated growth in data center revenue in the latter half of the fiscal year due to the modest improvement in demand for traditional servers, while also addressing weakening consumer and commercial spending, especially in China.
The significant job cuts are expected to affect around 15,000 employees this year, marking the largest single job reduction reported on Layoffs.fyi, an industry monitoring platform.
Gelsinger emphasized the necessity of aligning cost structures with the new operational model and addressing the company’s high costs and low margins. Intel aims to achieve approximately $20 billion in cuts this year, followed by $17.5 billion in 2025 and further reductions in 2026.
Despite the drop in after-hours trading, Intel has witnessed a 42% decrease in stock value this year, contrasting the nearly 14% gain of the S&P 500 index during the same period.
