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Chipmaker Intel says it is cutting 15% of its huge workforce — about 15,000 jobs — as it tries to turn its business around to compete with more successful rivals like Nvidia and AMD.
In a memo to staff, Intel Corp. CEO Pat Gelsinger said Thursday the company plans to save $10 billion in 2025.
“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” he wrote in the memo published on Intel’s website. “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low.”
The job cuts come in the heels of a disappointing quarter and forecast for the iconic chip maker founded in 1968 at the start of the PC revolution.
Next week, Gelsinger wrote, Intel will announce an “enhanced retirement offering” for eligible employees and offer an application program for voluntary departures.
“These decisions have challenged me to my core, and this is the hardest thing I’ve done in my career,” he said. The bulk of the layoffs are expected to be completed this year.
The Santa Clara, California-based company is also suspending its stock dividend as part of a broader plan to cut costs.
Intel reported a loss for its second quarter along with a small revenue decline, and it forecast third-quarter revenues below Wall Street’s expectations.
Its stock plunged 19% in after-hours trading, indicating that Intel could lose roughly $24 billion of its market value when the stock market opens Friday.
The company posted a loss of $1.6 billion, or 38 cents per share, in the April-June period. That’s down from a profit of $1.5 billion, or 35 cents per share, a year earlier. Adjusted earnings excluding special items were 2 cents per share.
Revenue slid 1% to $12.8 billion from $12.9 billion.
Analysts, on average, were expecting earnings of 10 cents per share on revenue of $12.9 billion, according to a poll by FactSet.
“Intel’s announcement of a significant cost-cutting plan including layoffs may bolster its near-term financials, but this move alone is insufficient to redefine its position in the evolving chip market,” said eMarketer analyst Jacob Bourne. “The company faces a critical juncture as it leverages U.S. investment in domestic manufacturing and the surging global demand for AI chips to establish itself in chip fabrication.”
Gelsinger noted in a conference call with analysts that Intel has previously said that its investments in the AI PC market would pressure its profit margins over the short term but should benefit the company in the long term.
“We believe the trade-offs are worth it. The AI PC will grow from less than 10% of the market today to greater than 50% in 2026,” he said.
Unlike its rivals like Nvidia, Intel manufactures chips in addition to designing them. It has been working to build up its foundry business making semiconductors in the U.S., competing with rivals such as market leader Taiwan Semiconductor Manufacturing Co. or TSMC.
Helped by Gelsinger’s lobbying efforts since he took the company’s helm in 2021, Intel has been a major beneficiary of the 2022 CHIPS and Science Act. The Biden administration helped shepherd that through Congress amid concerns after the pandemic that the loss of access to chips made in Asia could plunge the U.S. economy into recession.
In March, President Joe Biden celebrated an agreement to provide Intel with up to $8.5 billion in direct funding and $11 billion in loans for computer chip plants around the country, talking up the investment in the political battleground state of Arizona and calling it a way of “bringing the future back to America.” At the time, Gelsinger called the CHIPS Act “the most critical industrial policy legislation since World War II.”
In September 2022, Biden praised Intel as a job creator with its plans to open a new plant near Columbus, Ohio. The president praised the company for plans to “build a workforce of the future” for the $20 billion project, which he said would generate 7,000 construction jobs and 3,000 full-time jobs set to pay an average of $135,000 a year.
“The U.S. government wants to reinvigorate domestic manufacturing, especially this is the area of advanced computer chips,” Bourne said. “And Intel has been kind of earmarked for this money. But there’s a lot of infrastructure that goes into this, there’s the building of these facilities, which are really highly specialized — and then you also need to upskill the local workforce where these plants are located. And so it takes time. This is not something that happens overnight.”
Amazon reported a boost in its quarterly profits Thursday, but the company missed revenue estimates, sending its stock lower in after-hours trading.
The Seattle-based tech company said it earned $13.5 billion for the April-June period, higher than the $10.99 billion industry analysts surveyed by FactSet had anticipated. Amazon earned $6.7 billion during the same period last year.
Earnings per share for the second quarter came out to $1.26, higher than analysts’ expectations of $1.03.
However, investors reacted negatively to other results, leading Amazon shares to fall more than 6% after the closing bell. The company posted revenue of $148 billion, a 10% increase that fell slightly below analyst expectations of $148.67 billion.
Amazon also said it expects revenue for the current quarter, which ends Sept. 30, to be between $154 billion and $158.5 billion — lower than the $158.22 billion forecast by analysts.
Amazon boosted its spending during the COVID-19 pandemic to keep up with higher demand from consumers who became more reliant on online shopping. But as demand cooled and wider economic conditions pressured other parts of its business, the company aggressively cut costs by eliminating unprofitable businesses and laying off more than 27,000 corporate employees.
The cost-cutting has led to growth in profits. However, Amazon is also feeling the benefits of the buzz around generative artificial intelligence, which has helped reaccelerate its cloud computing unit, Amazon Web Services, after it experienced a slowdown.
The company said Thursday that Amazon Web Services saw a 19% jump in revenue compared to the same period last year.
“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” Amazon CEO Andy Jassy said in a statement.
The cloud computing unit, whose customers are mostly businesses, has been attempting to lure in more customers with new tools, including a service called Amazon Bedrock that provides companies with access to AI models they can use to make their own applications. In April, Jassy said AWS was on pace for $100 billion in annual revenue.
But Amazon is also expected to spend more this year to support the unit. During a call with reporters, Chief Financial Officer Brian Olsavsky said the company spent more than $30 billion during the first half of the year on capital expenditures, the majority of it to boost infrastructure for AWS. It expects that to increase during the second half, he said.
Like other tech companies, Amazon has been ramping up investments in data centers, chips and the power needed for AI workloads, Olsavsky said. Among other projects, the company plans to put billions toward additional infrastructure in Saudi Arabia, Mexico and Mississippi, where it has secured state incentives to build two data center “complexes.”
“The key for us is always to make sure that we’re matching that supply and demand, and running it efficiently so we don’t have excess capacity,” Olsavsky said. “That’s not a concern right now. Our concern is more on getting the supply.”
Meanwhile, revenue for the company’s core e-commerce business grew by 5%, which was more sluggish compared to recent quarters. The numbers did not include sales from Amazon’s annual Prime Day discount event, which took place last month.
Olsavsky said the company came up short on revenue growth in North America because customers were still being cautious with their spending and trading down to cheaper items.
Amazon said sales from its advertising business — which mostly comes from ad listings on its online platform — jumped by 20%. Earlier this year, it began placing ads on movies and TV shows found on its Prime Video service to bring in extra dollars.
Last month, Prime Video also became one of three companies to sign an 11-year media rights deal with the National Basketball Association.
But the company faces other challenges.
This week, federal regulators said Amazon was responsible for the recall of more than 400,000 hazardous products that were sold on its platform by third-party sellers and shipped using its fulfillment service.
Amazon is also facing an antitrust lawsuit, which alleges it has been overcharging sellers and stifling competition.
Amazon’s results followed other earning reports this week from tech giants such as Microsoft, Meta and Google’s corporate parent, Alphabet Inc.
Apple snapped out of a prolonged sales slump during its most recent quarter as the trendsetting company prepares to launch into the artificial intelligence craze with an arsenal of new technology that’s expected to juice demand for its next iPhone.
The fiscal third-quarter results announced Thursday covered an April-June period that’s typically a sluggish stretch for Apple as its loyal customer bases awaits the next version of the iPhone that’s traditionally unveiled shortly after Labor Day.
Even so, Apple boosted its sales from a year ago — a welcome reversal of fortune on the heels of five consecutive quarters of year-over-year revenue declines.
This time around, Apple’s revenue rose 5% from a year to $85.78 billion — a figure that exceeded analysts’ projections. The Cupertino, California, company earned $21.45 billion, or $1.40 per share, an 8% increase from the same time last year. The profit also topped analyst forecasts.
Apple’s shares swung between slight increases and modest declines in Thursday’s extended trading as investors assessed the results.
Sales of the iPhone — Apple’s marquee product — remained on a downward slope though, dipping 1% from last year to $39.3 billon. That decrease wasn’t as bad as the January-March period when iPhone sales plummeted 10% from last year, and now the product appears headed toward a major upswing.
That’s because Apple is planning to roll out a variety of artificial intelligence features that are supposed to make its virtual assistant Siri smarter and also perform a variety of helpful and fun tasks, including helping to draft texts and even creating unique emojis on demand. The AI tools will be included in a free software update expected in the autumn, but most of the features will only work on iPhones with a special chip that so far has only been available on two premium models Apple released last year.
The next model, the iPhone 16, is expected to be equipped with the AI chip — a factor that analysts believe will spur consumers who have been holding on to their older devices to splurge on upgrades so they can take advantage of the new features. That expectation is the main reason why Apple’s stock price has surged 13% since the company previewed its AI tools in early June — a run-up that has created about $400 billion in shareholder wealth so far.
“I believe it will be a very key time for a compelling upgrade cycle,” Apple CEO Tim Cook told analysts during a Thursday conference call.
Apple’s push into AI may also fuel its steadily growing services division, which saw its revenue climb 14% from last year to $24.21 billion in the most recent quarter. Although the services division has been thriving for years, it’s confronting regulatory threats that could drag down its performance.
A lucrative deal that generates about $20 billion in revenue by making Google the default search engine on the iPhone and Safari browser is being targeted in a high-profile antitrust case that the U.S. Justice Department filed against Google. A federal judge is expected is to issue a ruling by the end of this year.
The Justice Department also is targeting Apple in a separate lawsuit that it filed in March, alleging the company is illegally locking out competition by erecting unnecessary barriers around the iPhone. Apple has adamantly denied any wrongdoing and launched an attempt to have the case dismissed in documents filed Thursday in New Jersey federal court.
That started a legal process that will take several more months to play out before the presiding judge decides whether to throw out the case or allow it to proceed in a ruling likely to come late this year or early next year.
As has been happening during much of the past year, Apple’s sales continued to erode in China — a worry for investors because the region is one of the company’s key markets. Apple’s revenue in China dropped 7% from last year in the past quarter.