With a number of companies taking cost cutting measures, another company that is going ahead with aggressive cutback measures is Intel Corp. The chip manufacturer is also considering divestitures. This comes as the world's largest semiconductor chip manufacturer by revenue tries to deal with a plunge in demand for personal computers (PCs) that has weighed on its earnings.
Intel posted a 20% drop in its Q3 sales and is predicting an even lower revenue in the current quarter. The Santa Clara-headquartered semiconductor company has also lowered its full-year outlook.
The company is starting targeted job cuts and is also making other adjustments. This includes reducing factory hours to cope with the economic downturn, Chief Executive Pat Gelsinger said in an interview. Gelsinger has not specified how many of Intel’s employees will be affected by the proposed measures. The company has over 120,000 employees.
“We are planning for the economic uncertainty to persist into 2023,” Gelsinger said on an earnings call. “It’s just hard to see any points of good news on the horizon.”
Intel said it was working to deliver $3 billion in cost reductions in 2023, growing to $8-10 billion in annualized cost reductions and efficiency gains by the end of 2025. The company took a $664 million restructuring charge in the third quarter to reflect initial cost reductions.
Chip industry faces many challenges
With its heavy reliance on the PC market, Intel has been among the worst-hit in the chip industry. As per International Data Corp, PC shipments saw a 15% contraction in Q3, according to. Third quarter sales in the segment fell by 17%.
While Intel chips predominate in server farms that process data for companies as well as governments, it is facing competition from Advanced Micro Devices Inc. Revenue for Intel’s data center division reported a fall of 27% to $4.2 billion for the third quarter
Swing in the markets
Most chip makers, including Intel, made a lot of money as the pandemic resulted in a boom in sales of computers and other electronics. This happened as employees from various organizations began to either work from home or work in a hybrid setup. Many educational institutes also moved to distance learning, increasing demand for PCs across a wide cross-section of the society.
But now, with rising inflation and fears of a recession looming large, demand has dropped and many tech companies are facing the pressure of gloomy forecasts. The strong, and still rising, dollar has also had a negative impact on earnings.
Accelerator and brake together
One of the biggest challenges being faced by Intel right now is cutting costs while it simultaneously expands manufacturing, as it tries to catch up with rivals
“It really is hitting the accelerator and the brake at the same time,” Gelsinger said. While the company will build new plants, it shall hold off on buying costly chip-making equipment until those tools are really needed, he said.
Freeze in hiring, layoffs galore
Layoffs and hiring freezes are slowly becoming the norm in more and more technology companies as inflation surges and demand dips. Most major tech companies including Microsoft Corp., Google parent Alphabet Inc. and Facebook parent Meta Platforms Inc. have seen their share values dip considerably.
Google parent Alphabet has announced a hiring freeze of 50% for the fourth quarter after the previous quarters’ earnings didn't meet expectations. Alphabet and Google CEO Sundar Pichai said that the firm has started its work to drive efficiency by realigning resources to invest in its biggest growth opportunities
Earlier in the year, in an effort to catch up to the competition for software-driven electric vehicles, Ford Motor had said it will eliminate 3,000 salaried and contract positions worldwide, largely in North America and India.
Dutch electronics and electrical manufacturer Philips has also announced its plans to cut 4,000 jobs after they recalled faulty sleep respirators.