In a move that will likely raise a few eyebrows among taxpayers, Intel announced today that it will cut 15 percent of its workforce, or more than 15,000 jobs, as it struggles to rebound from disappointing results. In March, the U.S. government said it would give Intel no less than $8.5 billion to aid it rebuild its U.S. chipmaking operations.
Intel said its revenue fell 1 percent year over year in the second quarter. “We don’t take this lightly and have carefully considered the impact this will have on the Intel family,” CEO Pat Gelsinger said on today’s earnings conference call. “These are difficult but necessary decisions. These reductions do not impact our ability to execute on our plan.”
The job cuts will affect areas such as sales, marketing and administrative positions, Intel said, and are part of an overall cost-cutting plan. The move follows a 5 percent reduction in staff announced by Intel last year.
“That’s a lot of jobs,” Patrick Moorhead, principal analyst at Moor Insights & Strategy, a chip industry consultancy, tells WIRED. But Moorhead says it’s a positive sign that the proposed layoffs appear to be targeted, not widespread. “Layoffs don’t always mean there’s something wrong with the company, but to me, it’s about strategy,” he says.
Intel is struggling to implement a challenging restructuring plan that includes a renewed focus on making chips for others through its foundry business and a faster transition to cutting-edge manufacturing methods. In February, the company said its accelerated roadmap for making cutting-edge chips was on track and it pledged to become the world’s No. 2 foundry company by 2030. Intel said today that it remains on track to meet those goals.
The money Intel received in March is the largest grant yet from the U.S. government under the CHIPS Act of 2022, which earmarked $52.7 billion to return chip production and invest in chip research and worker training. The company will also receive tax credits of up to 25% on $100 billion of investment and be eligible for federal loans of up to $11 billion.
The $8.5 billion in funding will go toward building plants in Arizona, Modern Mexico, Ohio and Oregon. Intel said the investments it’s making in those chip plants will create more than 10,000 jobs at the company, 20,000 construction jobs and thousands of other jobs in supporting industries. “The money that Intel raises is being used to build the plants,” says Moorehead of Moor Insights & Strategy. “It’s not stopping, and it’s actually creating a lot of jobs.”
After decades of success with personal computers, Intel has failed to capitalize on the smartphone era, ceding market share to chips based on Arm designs. More recently, Nvidia, which started out making graphics chips for gaming, has risen to prominence with its hardware for training AI algorithms. Intel has also fallen behind its manufacturing rivals, TSMC in Taiwan and Samsung in South Korea.
The U.S. government is helping to fund Intel’s restart because advanced chips are seen as crucial to economic and geopolitical competitiveness. The pandemic has exposed how vulnerable many American industries are to a delicate global supply chain. Advanced chips are also key to building artificial intelligence, which is increasingly seen as a national imperative.
The United States now produces 12 percent of the world’s semiconductors, up from 37 percent in the 1990s. Consulting firm McKinsey has predicted that the value of the semiconductor industry would grow impressively this decade, from $600 billion in 2021 to over $1 trillion in 2030.
Dan Hutcheson, an analyst at Tech Insights, says Intel’s revenue shortfall reflects an ongoing shift toward AI-centric data center computing. “It used to be [Intel] “He owned the data center,” Hutcheson says. “What we’ve seen over the last few years is that the big scalers have focused on AI and GPUs—entire AI data centers.”
Hutcheson said Intel’s overall strategy seems to make sense, but the cuts indicate the company is struggling to fix the problem that initially brought it to a standstill.