Intel acts to 'accelerate progress'
Intel CEO Pat Gelsinger has outlined plans for the future to employees after second-quarter 2024 earnings were published on Aug. 1, 2024.
Intel plans to deliver $10 billion in cost savings in 2025, and this includes reducing head count by roughly 15,000 roles, or 15% of the workforce. The majority of these actions will be completed by the end of this year.
The company is seeking to align its cost structure with its new operating model and fundamentally change the way it operates. Revenues have not grown as expected – and the company has yet to fully benefit from powerful trends, like AI. Costs are too high, and margins are too low. As a result, actions are being taken to address both – particularly given the financial results and the outlook for the second half of 2024, which is tougher than previously expected.
Since introducing its new operating model, Intel has taken a clean-sheet view of the business and assessed itself against benchmarks for high-performing foundries, fabless product companies and corporate functions. This work made it clear the company's cost structure is not competitive.
For example, annual revenue in 2020 was about $24 billion higher than it was last year, yet the current workforce is actually 10% larger now than it was then. There are a lot of reasons for this, but it’s not a sustainable path forward.
Beyond its costs, Intel is to change the way it operates. There’s too much complexity, so there is a need to both automate and simplify processes. It takes too long for decisions to be made, so there is a need to eliminate bureaucracy. And there’s too much inefficiency in the system, so there is the need to expedite workflows.
Key Priorities
Areas of focus include:
Reducing Operational Costs: Intel will drive companywide operational and cost efficiencies, including the cost savings and head count reductions mentioned above.
Simplifying the Portfolio: Intel will complete actions this month to simplify its businesses. Each business unit is conducting a portfolio review and identifying underperforming products. The company is also integrating key software assets into the business units to help accelerate the shift to systems-based solutions. And the plan is to narrow its incubation focus on fewer, more impactful projects.
Eliminating Complexity: Intel will reduce layers, eliminate overlapping areas of responsibility, stop non-essential work, and foster a culture of greater ownership and accountability. For example, the company will consolidate Customer Success into the Sales, Marketing and Communications Group to streamline the go-to-market motions.
Reducing Capital and Other Costs: With the completion of its historic five-nodes-in-four-years roadmap clearly in sight, Intel will review all active projects and equipment so it begins to shift its focus toward capital efficiency and more normalized spending levels. This will reduce 2024 capital expenditures by more than 20%, and the plan is to reduce non-variable cost of goods sold by roughly $1 billion in 2025.
Suspending its Dividend: Intel will suspend its stock dividend beginning next quarter to prioritize investments in the business and drive more sustained profitability.
Maintaining Growth Investments: The company's IDM2.0 strategy is unchanged. Having fought hard to reestablish its innovation engine, Intel will maintain the key investments in its process technology and core product leadership.
The Future
Intel CEO Pat Gelsinger explained: "I have no illusions that the path in front of us will be easy. This is a tough day for all of us and there will be more tough days ahead. But as difficult as all of this is, we are making the changes necessary to build on our progress and usher in a new era of growth.
"When we began this journey, we set our sights high, knowing that Intel is a place where big ideas are born and the power of what’s possible triumphs over the status quo. After all, our mission is to create world-changing technologies that improve the lives of every person on the planet. And at our best, we have exemplified these ideals more than any company in the world.
"To live up to this mission, we must continue to drive our IDM 2.0 strategy, which remains the same: re-establish process technology leadership; invest in at-scale, globally resilient supply chain by expanding manufacturing capacity in the U.S. and EU; become a world-class, leading-edge foundry for internal and external customers; rebuild product portfolio leadership; and deliver AI Everywhere.
"Over the past few years, we have rebuilt a sustainable innovation engine that is largely in place and on track. It’s now time to focus on building the sustainable financial engine needed to drive our performance. We must improve our execution, adapt to new market realities and operate as a more agile company. That’s the spirit of the actions we are taking – knowing that the choices we make today, as difficult as they are, will strengthen our ability to serve our customers and grow our business for years to come.
"As we take these next steps in our journey, let’s not forget that there has never been a greater need for what we do. The world will increasingly run on silicon – and the world needs a healthy and vibrant Intel. That’s why the work we are doing is so consequential. Not only are we remaking a great company, but we are also creating technology and manufacturing capabilities that will reshape the world for decades to come. And this is something we should never lose sight of as we push forward in pursuit of our goals."
We’ll talk more in a few hours. Please come with your questions so we can have an open and honest discussion about what comes next.
