Intel (NASDAQ:INTC) is looking to reduce its headcount as a part of the chip-maker’s plan to cut costs amid a massive slowdown in personal computer sales, Bloomberg News reported.
The report noted that the official announcement could arrive later this month as Intel prepares to finalize its plans. Intel is due to report its earnings results Oct. 27, which could be a potential date for the statement on new cost-cutting actions.
The report also added that the head count in some divisions, like sales and marketing, could be reduced by as much as 20%. Intel had 113,700 employees as of July.
Cost-Cutting, Restructuring To Help Reaccelerate Growth
The rumored move could come following a sharp drop in demand for PC processors, the core of Intel’s operations. Furthermore, the California-based company has been struggling to recover the market share it lost to its key rival Advanced Micro Devices (NASDAQ:AMD).
Earlier this year, Intel said it expects its 2022 sales to be roughly $11 billion lower than its initial estimates, while analysts project a 20% decline in the chip-maker’s revenue in Q3. The ongoing bear market slump has also weighed on Intel’s margins, which narrowed by around 15% from the previous figure of 60%.
“We are also lowering core expenses in calendar year 2022 and will look to take additional actions in the second half of the year,” CEO Pat Gelsinger said back then.
Still, Intel’s decision to move forward with layoffs now might come as a surprise to some since the company fought hard for a $52-billion chip stimulus in 2022 in a bid to expand production in the U.S.
A separate report from the Wall Street Journal noted that Gelsinger is pushing to separate the powers of chip design and production units. The aim of such a move would be to allow Intel to work like contract operations. During the Q2 earnings call, Gelsinger noted that Intel is also considering making business revamps to boost profits
Earlier this month, Intel’s Mobileye filed for an initial public offering that could value the business unit at around $30 billion, according to Bloomberg.
‘Historic’ Slump In PC Market Growth
Global PC shipments declined 19.5% in Q3 relative to the same period last year, according to preliminary results by the market research firm Gartner. This represents the sharpest drop since Gartner (NYSE:IT) began monitoring the PC market in the mid-1990s and the fourth straight year-over-year slump.
“This quarter’s results could mark a historic slowdown for the PC market,” said Gartner’s Mikako Kitagawa. The downturn was mainly due to swollen inventories because of a weak PC demand in consumer and business markets, Kitagawa added.
As a result, Intel’s main customers – HP (NYSE:HPQ), Lenovo, Dell and other PC makers that use Intel’s chips – have also seen notable sales declines. PC sales declines were most notable in Europe, the Middle East and Africa, dropping by 26.4% year-over-year. Sales in the U.S. and in the Asia-Pacific region, excluding Japan, fell by 17.3% and 16.6%, respectively.
Kitagawa also noted back-to-school sales came in worse than expected due to substantial price drops and broad promotions as a number of consumers already bought new PCs over the past two years. Businesses also bought fewer PCs due to geopolitical and economic headwinds.
KeyBanc analyst John Vinh said the market slowdown could weigh on the company’s fundamentals. The drop in PC sales and modest data center demand in China and the enterprise market was partly reflected in Intel’s previous guidance, Vinh added, though the situation has exacerbated even more since the company’s last report.
Disappointing Turnaround
Intel’s layoffs plan follows the chip-maker's disappointing Q2 results. Long-term Intel investors were hoping for a successful turnaround after the company hired seasoned tech executive Pat Gelsinger in January 2021.
The Q2 results showed that revenues declined 22% year-over-year, while Intel’s net income plummeted 109%. The chip-maker’s client computing unit reported revenue of $7.7 billion, down 25% year-over-year.
While Intel is considered a key company in the machine learning sphere, its data centre and artificial intelligence (AI) business bagged $4.6 billion in revenue, 16% less than in the same quarter last year. Finally, only the networking and edge unit recorded positive year-over-year growth in Q2 2022, reporting a revenue of $2.3 billion, up 11%.
“This quarter’s results were below the standards we have set for the company and our shareholders,” said Gelsinger. “We must and will do better. The sudden and rapid decline in economic activity was the largest driver, but the shortfall also reflects our own execution issues.”
Final Thoughts
Intel is reportedly working to restructure its giant business to make it more streamlined. Moreover, media reports surfaced that the chip-maker is planning to make significant job cuts later this month to offset a “historic” slump in PC demand.
With Intel shares down more than 50% YTD, new initiatives will provide some support in the near term, although investors are likely to focus on the big picture and a massive slowdown in the PC market.