Intel Corp. shares suffered their biggest decline in more than 40 years after the company issued a bleak growth forecast and outlined plans to cut 15,000 jobs, signaling the chipmaker is unprepared to compete in the age of artificial intelligence.
Shares tumbled more than 26 percent after the opening bell in New York on Friday, wiping out about $32 billion in market value. That marks the biggest intraday drop in stocks since at least 1982, according to data compiled by Bloomberg.
Intel said it plans to cut more than 15 percent of its workforce of about 110,000 people. It is also suspending dividend payments to shareholders starting in the fourth quarter, and will continue to do so until “cash flows improve to sustainably higher levels,” according to the statement. The company has paid a dividend since 1992.
Intel is a major supplier of semiconductors to the automotive industry, having supplied chips installed in more than 50 million vehicles, according to the company. It said 18 automakers have vehicles with Intel chips on the road for use in their electric vehicles and software systems.
Intel also owns a majority stake in Mobileye, which is locked in a battle for market share with Nvidia and Qualcomm over advanced chips used in automated driving systems.
Intel’s financial troubles are likely to draw the attention of automakers, especially after the recent semiconductor shortage highlighted the growing importance of chipmakers in the supply chain.
The role of these companies will only grow in the coming years as the industry digitizes vehicle interiors, seeks to improve the capacity of electric batteries and software and automation become more advanced, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions.
“All of these things are increasing the needs for semiconductors of all types, and that’s not going to slow down any time soon,” said Fiorani, who closely monitors the impact of semiconductor availability on automotive manufacturing.
Intel Profits
Sales for the current quarter will be $12.5 billion to $13.5 billion, the company said Thursday. Analysts on average had projected $14.38 billion, according to data compiled by Bloomberg. Intel will report a loss of 3 cents per share, excluding certain items, compared with expectations for a profit of 30 cents.
“I have no illusions that the path ahead will be easy,” CEO Pat Gelsinger said in a memo to employees. “You shouldn’t either.” He called the moves to cut jobs and dividends “some of the most consequential changes in our company’s history.”
Gelsinger, despite a massive spending plan to restore Intel to industry prominence, is struggling to improve the company’s products and technology fast enough to retain customers. The results underscore a dramatic decline for Intel, which dominated the semiconductor industry for decades and is now forced to push through cost-cutting measures and provide assurances that it can finance growth plans.
“Revenue is not where we want it to be,” CFO Dave Zinsner said in an interview. “Financials were not where we want them to be.” The job cuts were necessary “to get us to a place where we have a more sustainable model for the business going forward.”
In the second quarter, the company earned 2 cents a share, excluding certain items, on revenue of $12.8 billion, down 1%. Analysts had estimated earnings of 10 cents a share on sales of $12.95 billion. Wall Street is projecting a modest increase in overall sales this year from 2024, still leaving the company more than $20 billion below its peak in 2021.
Competitors specializing in artificial intelligence are taking some of Intel’s customers. Nvidia Corp. now has more than double the quarterly sales of its former foe. Once a struggling rival, Advanced Micro Devices Inc. is valued at more than $100 billion more by investors, and Taiwan Semiconductor Manufacturing Co. is widely regarded as having the industry’s best manufacturing.
Gelsinger remains confident that Intel is on the right track in the long run. He argued that Intel’s vital manufacturing is on track to catch up with and surpass rivals’, and that this will attract external customers and justify the slew of new plants Intel is building. He thinks Intel has paid what it needs to catch up with the industry and can now focus on its finances.
Some of Intel’s best chips are made by others. Over time, the company hopes to move more of its chip manufacturing to its own plants, which are being upgraded. The company is also working to accelerate improvements in chips for AI PCs. But for now, the expenses are squeezing gross margins, Zinsner said.
Gross margin, or the percentage of sales remaining after deducting the cost of production, was 35.4 percent in the quarter. That measure will remain flat in the current quarter. At its peak, Intel regularly reported gross margins well above 60 percent.
The company is cutting its spending on new plants and equipment in 2024 by more than 20%, and is now budgeting between $25 billion and $27 billion. Next year, spending will range between $20 billion and $23 billion.
Intel is building a massive chip assembly operation in central Ohio — the largest economic development project in the state’s history.
Most of the job cuts, also needed to remove bureaucracy and speed up decision-making, will be completed by the end of the year, Gelsinger told staff.
“Our costs are too high, our margins are too low,” he wrote in the memo, saying he would answer employee questions at an internal meeting. “We need bolder actions to address both — especially given our financial results and outlook for the second half of 2024, which is tougher than previously expected.”
Intel was forced to lower its sales expectations in May after the U.S. government revoked its license to supply chips to China’s Huawei Technologies Co., part of Washington’s move to cut off control of the company over what it says are national security risks.
The chipmaker is reporting profits for the second time under a new business structure that shows the financial performance of its manufacturing operations. Gelsinger said the restructuring was a necessary step to make operations more efficient and competitive.
The company reports revenues split between product groups and its manufacturing operations, with factories undergoing a major upgrade and an expansion program that is weighing heavily on profits.
Revenue is improving in what it calls its Foundry unit, gaining 4 percent from a year earlier to $4.32 billion. PC chips also saw growth, up 9 percent from the same period a year earlier.
Sales in the crucial data center unit, once the most profitable, lost ground again, declining 3 percent to $3 billion. That unit has yet to achieve anything like Nvidia’s market presence in accelerator chips used in artificial intelligence systems. AI is proving to be a gold mine, and it is cutting costs in the kind of processors Intel makes.
Bloomberg and John Irwin of Automotive News contributed to this report.