Intel Plans Major Workforce Cuts Amid AI Chip Race

Intel announced it will cut over 15% of its workforce and suspend its dividend in a bid to turnaround its manufacturing business. The company faces challenges due to declining traditional data center semiconductor demand and competition in the AI chip market. The layoffs will affect 17,500 employees by the end of 2024.

Intel announced on Thursday its decision to cut over 15% of its workforce and suspend its dividend from the fourth quarter, as part of efforts to revitalize its loss-making manufacturing business. The company has reported third-quarter revenue projections below market estimates, citing reduced spending on traditional data center chips and its struggle to compete in the AI chip sector.

Shares of Intel, based in Santa Clara, California, fell 20% in after-hours trading, leading to a projected loss of over $24 billion in market value. The stock had already dropped 7% earlier in the day, following a conservative forecast from Arm Holdings. In contrast, AI leaders like Nvidia and AMD saw gains, reflecting their stronger positions in the burgeoning AI market.

Intel's CEO Pat Gelsinger discussed the strategic changes in an interview with Reuters, highlighting the need for a workforce shift from headquarters to customer support roles. The company, which employed 116,500 people as of June 29, aims to complete the job cuts by the end of 2024. Additionally, Intel plans to reduce operating expenses and capital expenditures by over $10 billion by 2025.

The tech giant's focus on heavy investments in manufacturing to rival TSMC has faced criticism for its delayed adoption of advanced lithography tools. While Intel has taken steps to close this gap, achieving a successful turnaround in its manufacturing business is expected to take years.

Intel's financial outlook remains grim, with a forecast revenue range of $12.5 billion to $13.5 billion for the next quarter, below analysts' average estimate of $14.35 billion. The impact of suspending dividends could further strain the company's stock performance in the short to medium term.