Author: Wang Xia
Intel is going to lay off employees again.
At the beginning of August, Intel's performance was accompanied by a notice to lay off 15000 employees.
Intel CEO Pat Gelsinger stated that this is part of the company's $10 billion cost cutting plan. I don't have any illusions that the road ahead of us will be smooth sailing. Neither should you. Today is a difficult day for all of us, and there will be even more difficult days in the future
However, Intel did not provide a specific and detailed layoff plan.
Regarding the extent to which the layoffs will affect China's business, Intel told Time Weekly reporters, "This reduction measure is global. The company will not disclose the number of affected employees by specific regions or locations." Intel stated that it is working hard to accelerate its strategy and significantly reduce costs. We will take various measures to reduce costs and improve efficiency, including cutting positions in some business and functional departments throughout the company.
Intel's (INTC. O) Q2 2024 financial report data shows that Q2 revenue was $12.8 billion, a decrease of 1% from the previous year, with a gross profit margin of 38.7%; Under GAAP (General Accounting Principles), the net profit was a loss of $1.6 billion. Intel's high expectations for wafer foundry resulted in revenue of $4.3 billion, a decrease of 1% compared to the previous period.
(Image source: Intel official)
The release of this second quarter report has caused a chain reaction. Firstly, Intel's stock price fell by a maximum of 26% to $21.48 on Friday. According to media reports, this is the largest daily decline in Intel stock since at least 1982.
On the same day, most technology stocks in the US stock market fell, with all three major indices closing significantly lower. The Dow Jones Industrial Average closed down 1.21%, the Nasdaq closed down 2.30%, and the S&P 500 closed down 1.37%.
Despite our progress in product and process, Q2's profitability was disappointing, "Intel CEO Pat Gelsinger said at the earnings report meeting.
On the same day as the financial report was released, a notice appeared on Intel's official website stating that Intel will lay off at least 15% of its employees as part of the company's $10 billion cost cutting plan. I don't have any illusions that the road ahead of us will be smooth sailing. Neither should you. Today is a difficult day for all of us, and there will be even more difficult days in the future
Pat Gelsinger believes that "not fully benefiting from powerful trends such as artificial intelligence" is one of the reasons why Intel's revenue fell short of expectations.
In order to match the first mover advantage of its competitors in this wave of AI, Intel has put a lot of effort into AI in recent years. From heavily betting on AI chips to splitting the wafer foundry business line, this CPU giant is eager to once again "dominate" in the AI era.
Blue Giant's transformation, reducing costs and increasing efficiency
Silicon Valley's' blue factories' are in a predicament.
Intel CEO acknowledges this. He believes that in the current era of technological innovation, the company is facing the dilemma of "too high costs and too low returns".
Intel's prescription for itself is' cost reduction '. On the same day of the financial report release, Intel proposed a plan to achieve a cost reduction of $10 billion by 2025. Specific actions include layoffs, simplifying product portfolios, reducing capital expenditures, and suspending dividend payments.
(Image source: Intel official)
According to the financial report, as of December 30, 2023, Intel had a total of 124800 employees worldwide. According to data from the same year, Intel China had over 12000 employees.
According to China Electronics News, the Chinese market generates approximately 25-30% of Intel's revenue. According to Tianyancha data, the registered locations of Intel China Holdings' subsidiaries are Beijing, Shanghai, Dalian, Chengdu, and Hainan.
Intel's business in China covers multiple aspects of industry, academia, and research. For example, Intel China Research Institute aims to build a new research network of multi party cooperation between government, industry, university and research, focusing on three R&D directions of artificial intelligence, edge computing and agile design; The purpose of Intel Asia Pacific R&D Center is to combine Intel's technology with market demand; Intel's Chengdu factory is one of its major chip packaging and testing centers.
According to Tianyancha data, there will be 2234 people paying social security for Intel products (Chengdu) in 2023. At present, Intel's Chengdu factory is one of the largest chip packaging and testing centers in the world, and also the factory with the largest number of people in China. In addition, Intel (China) has over 500 social security personnel and Intel (China) Co., Ltd. Beijing Branch has over 600 social security personnel.
If the layoff targets are distributed fairly among regions, Intel China's layoff numbers will probably be around 1500 people.
Time Weekly reporters found that users who claimed to be Intel employees and talked about layoffs on social media came from different departments and had different IP addresses.
Faced with hidden concerns about layoffs, some users have expressed that they have already opened up to the "waiting for a gift package (layoff compensation)", while others are tired of the "blunt knife cutting flesh" style of continuous layoffs. Some users who claim to be former employees have posted that Intel's progress to this point is influenced by various factors such as international situation and business decisions.
However, most users who speak out through social media platforms are unwilling to speak out about layoffs. Times Weekly reporters attempted to contact through the platform but did not receive any further response.
Intel has had multiple rounds of layoffs in the past two years. According to a post by a user claiming to have experienced layoffs on social media, although leaving the company is a complicated experience, they are relatively satisfied with the "layoff gift package".
Regarding details such as compensation for layoffs, involvement of business lines, and involvement of regions, reporters from Time Weekly sought verification from Intel.
But Intel stated that it will not disclose the number of affected employees by specific regions or locations. We will respect and treat every employee, and do our best to provide assistance and support, "Intel told Time Weekly reporters.
Intel expects to reduce the number of employees by 15000 or more by the end of 2024, with the majority to be completed by 2025.
Although being light and simple can bring about acceleration, the coldness has already spread to the surrounding areas from this point of origin. In the short term, it can indeed quickly alleviate financial pressure, optimize organizational structure, improve organizational efficiency and decision-making speed, but it may also lead to low morale and partial loss of technology, "Guo Junli pointed out.
Another approach taken by Intel is to simplify its product portfolio. In Guo Junli's view, simplifying the product portfolio can allow business to focus more on profitable and promising products and technologies, while reducing research and development, production, and marketing costs, enhancing overall competitive advantage. However, there is also a risk of losing certain segmented market opportunities and losing some customers due to limited market coverage.
Intel expects that after taking multiple measures, the total capital expenditure in 2024 will decrease by more than 20% compared to previous forecasts, with a total amount of $25 to $27 billion; By 2025, this number will be between $20 billion and $23 billion.
Under the wave of AI, progress is slightly slower
Where did Intel's money go, what results did it achieve, and where did the costs go?
Overall, the company's product department revenue for the second quarter was $11.8 billion, up 4% year-on-year.
(Image source: Intel official)
The traditional strong business CCG, driven by the concept of AI PC, performed relatively well, with revenue of 7.4 billion US dollars, a year-on-year increase of 9%.
At the performance report meeting, Intel revealed that the shipment of AI PCs has exceeded 15 million units, "several times more than the total of our competitors". It is expected that over 40 million units will be shipped by the end of 2024, and the cumulative shipment volume will exceed 100 million units by the end of 2025.
In addition to CCG business, data center and AI business are also the main sources of revenue for the company. In the 2023 annual report, the combined revenue of these two business lines accounts for at least 80%.
Under the tide of AI, the business demand for data centers has been pushed up, but Intel's performance, whether compared vertically with past performance or horizontally within the industry, cannot be called outstanding.
In the second quarter, its DCAI business revenue was 3 billion US dollars, a year-on-year decrease of 3%.
In the short term, the lackluster performance of data center business may be related to the fact that Intel's new products have not yet been officially launched.
At the report meeting, Intel announced that the Gaudi 3 AI accelerator will be officially put into production in the second half of 2024. It is reported that this previously highly anticipated "strongest AI chip" is benchmarked against the Nvidia H100. Nvidia stated that the Gaudi 3 can improve inference and training performance by about 2 times per dollar compared to the H100.
The first batch of client processors Panther Lake and server processors Clearwater Forest using Intel 18A process nodes are expected to be launched on the market in 2025.
In the long run, perhaps Intel's "AI Yes" is a bit late.
According to statistics from Wells Fargo, Nvidia currently holds a 98% market share in the data center AI market, while AMD (AMD O) Its market share is only 1.2%, while Intel's is less than 1%. Bank of America predicts that in the future, Gaudi 3 may only occupy less than 1% of the AI accelerator market share.
In AMD's second quarter report released a few days ago, its data center revenue was approximately $2.8 billion, a year-on-year increase of 115%. AMD's total revenue for the second quarter was $5.835 billion, less than half of Intel's revenue for this quarter. But AMD's current market value is more than twice that of Intel.
Intel CEO admits that the company has not fully benefited from powerful trends such as artificial intelligence, resulting in "high costs and low returns".
It is not easy to succeed in the field of artificial intelligence. Zhang Xiaorong, President of the Institute of Advanced Technology, frankly stated that Intel's AI chips have insufficient presence in the field of artificial intelligence, and their product competitiveness is weak. There is indeed room for improvement in technology research and market expansion.
Splitting of wafer foundry, frequent losses
Another business line closely related to AI is wafer foundry.
Intel has high hopes for this. According to public information, since 2023, Intel has successively announced plans to build semiconductor manufacturing factories in multiple locations such as the United States, Europe, and Israel, with a total investment amount of up to billions of dollars.
The performance of wafer foundry business seems not so impressive. The second quarter financial report showed revenue of $4.3 billion, an increase of 4% year-on-year and a decrease of 1% month on month.
(Image source: Intel official)
Intel CFO Dave Zinsner pointed out in his speech that the revenue growth of wafer foundry is mainly due to the increase in wafer production of Intel 7 process technology and Intel 3 and Intel 4 process technology. Among them, the latter uses EUV (Extreme Ultraviolet Photolithography) nodes from ASML.
However, if operational losses are included, Intel's wafer foundry business is not performing well. The operating loss of wafer foundry business in the second quarter of this year further expanded to 2.8 billion US dollars, with an operating profit margin of -65.5%.
Intel also admitted that over 85% of its wafer production still comes from EUV nodes, and the continued expansion of Intel 3 and Intel 4 process wafers at its Irish factory is putting pressure on the company's profitability.
This trend will continue in the short term. We expect the operating losses in the third quarter to continue to grow at a roughly similar rate, "said Dave Zinsner.
Guo Junli, Research Director of IDC Asia Pacific, evaluated Intel's foundry business as "struggling" in an interview with Time Weekly reporters. From the perspective of investment, wafer fabs need to make significant investments in new equipment, factory areas, personnel, and other aspects. In terms of revenue, wafer foundries such as TSMC and Samsung have significant advantages over Intel. As a new entrant, Intel needs to catch up as soon as possible on the basis of technology and customers. She believes that this part of the business may reach breakeven by 2027.
Overall, Intel has lowered its third quarter performance guidance expectations and expects revenue to be between $12.5 billion and $13.5 billion.
(Image source: Intel official)
The interweaving of excess profits in the distant future and the current risks of change has made it rare for Intel's semiconductor industry to simultaneously face the contradiction of talent shortage and layoffs.
McKinsey data shows that there may be nearly 70000 job vacancies in the US semiconductor industry. According to a PwC report, the talent gap in the European semiconductor industry is expected to reach 350000 by 2030. In China, according to the China Semiconductor Industry Association, the total demand for talent in the industry is expected to be around 790000 by 2024, with a talent gap of 230000. The talent gap in chip design and manufacturing industries is expected to be around 100000.
Semiconductor industry companies often span across emerging and mature markets, and the different demands of these two markets have led to this outcome
Zhang Xiaorong believes that with the continuous development of new technologies such as artificial intelligence, the demand for semiconductor chips is also increasing. These emerging markets require new products, leading to a shortage of talent in the semiconductor industry.
In mature markets, due to the uncertainty of the global economic situation and intensified market competition, the performance of many semiconductor companies has been affected, leading to some companies choosing to lay off employees to alleviate operational pressure.