Intel is planning to cut 15% of its jobs and suspend dividend payments as part of its efforts to turn the company around. As a result, the company's shares have plummeted.
Intel revealed that it would cut over 15% of its workforce, totaling around 17,500 employees, and suspend its dividend starting in the fourth quarter. This move comes as the chipmaker aims to revamp its focus on its money-losing manufacturing business. The company also projected third-quarter revenue below market estimates due to reduced spending on traditional data center semiconductors and a shift towards AI chips, where it lags behind competitors.
Following this announcement, Intel's shares plunged 20% in extended trade, resulting in a potential market value loss of over $24 billion. The stock had already closed down 7% earlier, aligned with a broader decline in U.S. chip stocks following a conservative forecast from Arm Holdings.
In contrast, AI leader Nvidia and smaller rival AMD saw an increase in their stock prices after the announcement, highlighting their strong positioning to capitalize on the AI trend, unlike Intel.
CEO Pat Gelsinger stated in an interview with Reuters that the job cuts aim to redirect resources from headquarters to more customer support in the field. As for the dividend suspension, he emphasized the current focus on strengthening the balance sheet and reducing debt.
Intel's turnaround strategy is centered on advancing AI processors and expanding its manufacturing capabilities for hire. The company aims to regain its technological edge, which it lost to Taiwan's TSMC, the world's largest contract chipmaker.
The company’s efforts to rejuvenate its foundry business under Gelsinger have led to increased costs and pressure on profit margins. Intel announced plans to reduce operating expenses and capital expenditure by more than $10 billion in 2025.
Michael Schulman, chief investment officer of Running Point Capital, expressed skepticism about the $10 billion cost reduction plan, questioning whether it is sufficient and whether the reaction is somewhat delayed, considering CEO Gelsinger's tenure of over three years.
As of June 29, Intel had cash and cash equivalents of $11.29 billion and total current liabilities of about $32 billion.
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