Intel’s weak position in AI chip market leads to mass layoff

Intel has suffered an enormous setback in its imaginative and prescient of becoming a primary AI chip supplier.

On Thursday, Intel acknowledged it is going to reduce $10 billion in capital expenditures in 2025. To understand that amount, the company plans to cut by the highest of the 12 months 15,000 jobs or 15% of its workforce of roughly 110,000.

“That’s painful info for me to share,” Gelsinger acknowledged in a letter to employees. “I do know it’s going to be rather more robust so as to be taught. That’s a particularly onerous day for Intel as we’re making a variety of probably the most consequential modifications in our agency’s historic previous.”

Intel’s annual revenue in 2020 was $24 billion elevated than in 2023, however the company’s workforce is 10% greater within the current day, Gelsinger acknowledged in his letter. To reduce its headcount, Intel plans to roll out a retirement offering for eligible employees and supply an utility for voluntary departures beginning subsequent week. 

Driving the low cost in Capex is the need to align payments with product sales which have failed to satisfy Wall Street expectations. The company reported second quarter revenue of $12.8 billion, down 1% 12 months over 12 months. Intel forecasted revenue of $12.5 billion to $13.5 billion for the third quarter 2024, significantly decrease than Wall Street analyst expectations of $14.3 billion. Intel moreover anticipated an absence of three cents per share versus analyst expectations of a income.

These numbers launched a model new actuality to Intel CEO Pat Gelsinger.

“We’re clearly tempering our view on how briskly we are going to develop throughout the near time interval based totally on market circumstances,” Gelsinger acknowledged all through an earnings identify with consumers.

Intel, as quickly because the worldwide chief in chipmaking, has fallen far behind opponents. Nvidia, the leading supplier of AI accelerators, doubled Intel’s revenues in its closing fiscal quarter, a 262% enhance 12 months over 12 months. AMD, which competes with Intel all through numerous its chip merchandise, reported 5.8 billion in revenue for the second quarter of 2024, up 9% 12 months over 12 months. It has a market capitalization of virtually $100 billion larger than Intel.

The drag on Intel’s turnaround is its failure to feed the brand new AI market that has pushed improvement at Nvidia and AMD. Intel’s Gaudi processor hasn’t been well-received by cloud suppliers, the most important shoppers of AI accelerators.

“AI funding is sucking up numerous purchasing for decisions as a result of the market readjusts to the model new world of AI fashions and training,” acknowledged Jack Gold, principal analyst for J.Gold Associates. “Intel would not have an enormous performance in that space.”

Intel’s effectivity in its typical market of PC CPUs was constructive closing quarter. Revenues from PC makers grew 9%. However, the company reported a 3% drop in product sales of chips for data center servers.

Intel’s improvement throughout the PC market has been pushed by the introduction of AI PCs, which might be primarily laptops with specialised chips to run AI functions. However, that improvement hasn’t launched the revenue Intel anticipated.

“An ironic silver lining of the knowledge is that the AI PC market is doing increased even than Intel anticipated on account of they’re selling additional Intel Core Extraordinarily CPUs than they thought they may,” acknowledged Bob O’Donnell, principal analyst for TECHnalysis. However, the chips carry “little or no margin.”

All through the AI market, Intel is unlikely to point lots progress until companies start establishing AI functions that run on the perimeter of firm networks, the place Intel CPUs with built-in AI accelerators may purchase a sturdy foothold.

“In case you’re purchasing for large on AI (within the current day), you’re going to maneuver in the direction of Nvidia and AMD,” Gold acknowledged. “Intel may have a trailing share in that part of the market, not lower than until we switch within the course of a additional edge-leading AI processing setting.”

Intel’s Foundry unit

Gelsinger’s cost-cutting efforts indicate the company may have fewer property to drive its approach of becoming a sturdy competitor to the world’s fundamental chipmaker, Taiwan Semiconductor Manufacturing Co. Intel formally launched its Foundry unit this 12 months to make semiconductors for all shoppers, not merely Intel.

The Foundry unit had $4.3 billion in revenue closing quarter, up 4% from a 12 months previously. TSMC had virtually $21 billion in revenue, a 33% enhance from a 12 months previously.

Gelsinger insisted his plans for establishing the Foundry unit haven’t modified whatever the company’s financial turmoil.

“The Foundry approach is unchanged,” Gelsinger acknowledged. “However, until we have devoted orders, we’ll be modest on how lots gear we put in the direction of the shells and the web sites that we have got in place.”

Antone Gonsalves is an editor at huge for TechTarget Editorial, reporting on commerce traits important to enterprise tech shoppers. He has labored in tech journalism for 25 years and relies in San Francisco. Have a info tip? Please drop him an e-mail.