Intel is implementing a significant cost-cutting plan that includes laying off 15% of its staff as part of a $10 billion initiative to reduce costs. The company’s CEO, Pat Gelsinger, stated that the move is necessary to align their cost structure with their new operating model and address the fact that their revenues have not grown as expected. Despite reporting revenue of $12.8 billion in the second quarter, which was down 1% from the previous year, Intel faced an income loss of $1.6 billion. This initiative comes at a time when Intel has been facing challenges in the chip market, particularly in AI and mobile computing.
Intel, once the dominant chipmaker with a stronghold on PCs and Macs, has fallen behind in recent years due to the rise of mobile computing and AI technologies. The company has been surpassed in market value by competitors like Qualcomm and Texas Instruments, who lead in mobile chip technology. Intel’s struggle to keep up with Nvidia, a key player in the AI market, has resulted in heavy losses in its chip-making Foundry business. Intel is now investing heavily in its chip-making capabilities to position itself well for the AI era and remain competitive in a rapidly evolving market.
Intel’s decision to slash costs and restructure its business is also a response to changing trends in chip manufacturing and global demand for AI chips. The company is making a risky bet by aiming to manufacture competitors’ processors and serve as a white-label factory for companies like Apple, who design their own silicon chips but outsource manufacturing. This move will require significant investment and could potentially lead to more job cuts. Intel is hopeful that these investments will pay off and enable the company to build a resilient semiconductor supply chain in the US and globally.
Despite the company’s efforts to reduce costs and realign its business model, analysts are skeptical about Intel’s ability to redefine its position in the chip market. While the cost-cutting measures may improve Intel’s near-term financials, they may not be sufficient to address the challenges the company is facing. Intel’s decision to suspend its dividend starting in the fourth quarter of 2024 indicates a shift in its financial strategy and a focus on sustaining investments in chip manufacturing. However, the stock market’s reaction to Intel’s announcements was negative, with shares dropping 19% in after-hours trading.
Amazon, on the other hand, reported a 10% increase in sales and nearly doubled its operating profit in the last quarter. Despite this strong financial performance, the company’s guidance for future growth disappointed investors and caused a 5% drop in its stock price during after-hours trading. Analysts believe that Amazon will remain profitable but may face challenges in accelerating its bottom-line growth in the future. As both Intel and Amazon navigate changes in their respective markets and make strategic decisions to address evolving trends, they face uncertainties and risks that could impact their financial performance and competitive positioning.
