Intel income drops 59%, announces up to $10bn in cutbacks

'Our costs are too high and our margins are too low,' says CEO Gelsinger

Intel CEO Pat Gelsinger Thursday laid out a "right sizing" plan to cut $3 billion in 2023 and as much as $10 billion in costs by 2025 in moves that he said will impact headcount.

"Inclusive in our efforts will be steps to optimise our headcount," acknowledged Gelsinger in a conference call with Wall Street analysts. "These are difficult decisions affecting our loyal Intel family."

Intel has 121,100 employees.

In a conference call with analysts, Gelsinger said the "abrupt and pronounced slowdown in demand" that the chip giant highlighted in June has "broadened beyond our initial expectations and is now having an industry-wide impact across the electronics supply chain."

The cuts came with Intel announcing net income of $2.4 billion, a 59% drop for its third fiscal quarter ended 1st October compared with $5.9 billion in the same quarter a year ago. Intel reported a 15% drop in sales for the quarter to $15.3 billion compared with $18.1 billion a year ago.

Oregon Live reported last week that Gelsinger told employees via a video address that he would provide more details about the cutbacks on 1st November. "These are always hard decisions, but our costs are too high and our margins are too low," Gelsinger told employees in a video address. "We have to take actions to address them."

With PC demand softening in consumer and education and OEM inventory adjustments impacting sales, Intel's Client Computing Group sales were down 17% to $8.1 billion compared to $9.8 billion in the year ago quarter. Intel's Client Computing Group's operating income, meanwhile, plummeted 54% to $1.7 billion compared with $3.6 billion in the same quarter in 2021.

Intel's Data Center Group fared even worse than the Client Computing Group with sales down 27% in the quarter to $4.2 billion compared with $5.8 billion in the year ago quarter. Operating income for the Data Center Group, meanwhile, dropped from $2.3 billion in the year ago quarter to zero.

One bright spot for the company was the Network and Edge Group which reported a 14% increase in sales to $2.3 billion led by strength in 5G, edge and Ethernet products. Even with the double-digit sales increase, the unit posted an 85% drop in operating income to $75 million compared with $511 million in the year ago period.

Intel chief financial officer David Zinsner said Intel remains focused on its long-term strategy even in the face of a possible global recession.

"We are focused on embracing an internal foundry model to allow our manufacturing group and business units to be more agile, make better decisions and establish a leadership cost structure," he said. "We remain committed to the strategy and long-term financial model communicated at our investor meeting."

Kent Tibbils, vice president of marketing for Intel distributor ASI, said the drop in revenue wasn't unexpected. "We all know the market has been slowing down," he said.

As far as layoffs are concerned, Tibbils said channel partners will be interested to learn specifics as "people are going to want to know how that affects them… does that mean a product or technology they've been working on is going to disappear? Does it mean an important contact you had at the company will no longer be there. It will be important for channel and distribution partners to see what that reduction will mean."

Bob Venero, CEO of reseller Future Tech, said he has great confidence in Intel CEO Pat Gelsinger's IDM 2.0 turnaround plan.

"Pat Gelsinger knows what he's doing, he's making moves that are in the best interests of the stockholders and the company because of that Intel is going to come out on the other end of this in a much better position," he said.

"At the end of the day, Intel is a staple of most corporations' infrastructure, from the front end to the back end. They are not going anywhere."

Gelsinger, a one-time 30-year Intel veteran who returned to take the CEO role in January 2022 with an ambitious turnaround plan, said he knows Intel has a "lot of work to do" to deliver on what he calls the company's IDM 2.0 flywheel strategy for the "digital future."

A version of this story first appeared on Computing's sister site CRN.