It has embarked on serious cost-cutting efforts and is considering divesting as the chipmaker seeks to explore a sharp drop in demand for PCs hurting its revenue.
Intel posted a 20% decline in Q3 sales, forecasts lower revenue for the current quarter. and reduce the trend throughout the year
The company is beginning to cut job targets and make other adjustments, including cutting factory hours to deal with the economic downturn, Chief Executive Pat Gelsinger said in an interview on Thursday. He would not specify how many of Intel’s 120,000 employees would be affected.
“We are aggressively managing costs and driving efficiencies across the business,” he said, adding that the company was considering a possible divestiture. including other movements
Intel said it was working to reduce costs by $3 billion in 2023, rising to $8 billion to $10 billion in annual cost reductions and boosting efficiency by the end of 2025. The company charged $664 million in restructuring charges. the third quarter to reflect the initial cost reduction
Intel had $15.3 billion in sales in the third quarter. Make $1 billion in net income. It forecasts current quarter sales of $14 billion to $15 billion. That was $16.3 billion lower than Wall Street’s estimate. and reduce the full-year sales forecast It now forecasts sales of $64 billion. That was down from as much as $68 billion in July. Intel said it had cut its capital expenditure plan from $27 billion to $25 billion for the year.
Intel and other chip makers Make money selling computers and electronics at the start of the pandemic. By switching to remote work and distance learning. Even though the market has turned around with high inflation. higher interest rates and the fear of a recession affecting demand.
Tech companies at large are facing these pressures. That drives an unexpectedly sad trend this week for companies. This includes Microsoft. Corp.
Google’s main character Inc.
and Facebook’s parent company Meta Platforms Inc. sent their stocks down sharply. A strong dollar has also reduced their income.
“We are planning for the economic uncertainty to persist through 2023,” Gelsinger said on the earnings call. “It is difficult to see good news on the horizon.”
Intel shares fell more than 3 percent before results, although they traded above 4 percent in aftermarket trading after cost-cutting guidelines were set.
Intel is one of the chip industries that has been hit the hardest because of its heavy exposure to the PC market. The company posted a surprising loss in the second quarter on weaker demand for computers. PC shipments are expected to see a 15% contraction in the third quarter, according to the report. International Data Corp. third-quarter sales in this segment fell 17 percent.
Intel, which accounts for about half of its revenue from its PC chip division, said it expects the computing market to shrink about 15 percent to 19% this year, a bigger-than-expected drop. And it could shrink further next year. That division’s sales declined 17% in the third quarter.
The company is also challenged in the data center market. Intel’s chips dominate the server farms that process data for companies and governments. But it faces increasing competition from rival Advanced Micro Devices Inc. Intel’s data center division reported revenue fell 27 percent to $4.2 billion in the third quarter.
The weakness in Intel’s core business comes as it is expanding production and trying to catch up with rivals in Taiwan and South Korea in the race to create the fastest and most advanced chips. But ambitions don’t come cheap, Mr. Gelsinger, who took the lead last year. It has revealed plans to build factories in Arizona, Ohio and Germany, among other expansions. Those projects could cost hundreds of billions of dollars together.
“As Intel accelerates their long-term strategy, Now it was clear that the path leading there was built on a shaky foundation. which is now collapsing Because PCs are likely to revert to pre-Covid-19 levels. in the near future,” Bernstein Research analysts said in a note.
One of the challenges in reducing costs This includes reducing workforce and making efforts to make the plant more cost-effective. is to implement the plan while maintaining the strategy of expanding the company’s production base and chasing down competitors. Mr Gelsinger said.
“It really hits the accelerator and brake simultaneously,” he said, even though Intel is building a new factory. But it will stop buying expensive chipmaking equipment until they are really needed, he said.
Intel hopes to ease the financial burden of expanding by tapping incentives in the United States and Europe. which various governments Attempting to attract chip production with financial incentives Intel also reached an agreement with Canada’s Brookfield Asset Management in August to share expansion costs in Arizona. in the near future
The chip company identified a small part. of the Autonomous Driving Technology Unit Mobileye Global Inc.
On Wednesday, setting the listing price above its target range and adding $861 million, Mr. Gelsinger said at The Wall Street Journal’s Tech Live conference on Monday that the purpose of the IPO was not to raise funds, but to keep Mobileye a position. Better for growth, Mobileye shares are up 38% in first trade.
Signs are beginning to emerge that the recessionary economic outlook has eased the long-term chip shortage. Mr Gelsinger earlier this year predicted it would last until 2024.
Chips aimed at markets beyond PCs and smartphones are also starting to show signs of inappropriate demand. Texas Instruments Inc.
On Tuesday it said it saw weakness in the industry sparking a sell-off. Recently, the chip industry has been hit by U.S. controls. in some sales to China The rules set out this month require chip companies to obtain a license from the Commerce Department before they export high-performance chip manufacturing and artificial intelligence and supercomputer chips to China. Mr. Gelsinger said on Monday that America’s limitations are inevitable. Due to geopolitical competition between different countries intensify
Mr. Gelsinger described the impact of the restrictions on Intel as “relatively small”.
Chip maker Nvidia Corp.
It warned it could lose up to $400 million in quarterly revenue due to restrictions. and production equipment manufacturer Lam Research. Corp.
and applied materials Inc.
It warned that potential revenues would drop, which add up to billions of dollars next year.
Write to Asa Fitch at firstname.lastname@example.org.
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