Intel Shares Plunge After Wider-Than-Expected Loss and Layoff Announcement

Key Takeaways

• Intel shares plummeted in extended trading Thursday after the company posted a wider-than-expected loss.
• CFO David Zinsner said gross margin headwinds tied to Intel’s AI PC product and elevated costs negatively affected second-quarter results.
• The chipmaker said it plans to lay off 15% of its workforce as part of a $10 billion cost-savings plan.

Intel (INTC) shares plunged in extended trading Thursday after the company posted a wider-than-expected loss and said it would lay off 15% of its workforce as part of a $10 billion cost-savings plan.

The chipmaker missed expectations on its top and bottom lines, swinging to a second-quarter loss of $1.6 billion from a profit of $1.5 billion a year earlier. Revenue of $12.8 billion was down 1% year-over-year.

“Second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our AI PC product, higher than typical charges related to non-core businesses and the impact from unused capacity,” CFO David Zinsner said.

Intel said it expects third-quarter revenue of $12.5 billion to $13.5 billion, well below the $14.3 billion analysts had been expecting. It projected a loss of 24 cents per share, while analysts had expected a profit of 3 cents.

$10 Billion Plan To Lower Costs Includes Layoffs

In order to bring down costs, Intel said it would reduce its headcount by 15% by the end of 2024. Other cost-saving measures include lowering its research and development (R&D); marketing; and general and administrative spending to $20 billion in 2024, with further cuts in 2025 and 2026.

The company also said it would suspend its dividend starting in the fourth quarter.

“By implementing our spending reductions, we are taking proactive steps to improve our profits and strengthen our balance sheet,” Zinsner said.

Shares of Intel were down over 19% at $23.47 per share in extended trading as of 6:30 p.m. ET Thursday following the company’s earnings release.

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Analysis of Intel’s Second Quarter Performance

Intel, the leading chipmaker, experienced a significant drop in its shares after reporting a second-quarter loss of $1.6 billion, much wider than analysts had expected. The company’s revenue of $12.8 billion also fell short of expectations, declining by 1% compared to the previous year.

The disappointing results were attributed to several factors, including gross margin headwinds from the accelerated ramp of Intel’s AI PC product. Additionally, higher charges related to non-core businesses and the impact of unused capacity further contributed to the poor performance.

CFO David Zinsner acknowledged the challenges faced by Intel in the second quarter and emphasized the need for cost-saving measures to improve profitability. As part of a $10 billion cost-savings plan, the company announced a workforce reduction of 15% by the end of 2024. This decision aims to lower expenses and strengthen Intel’s balance sheet.

Intel’s cost-saving strategy also includes reducing research and development, marketing, and general and administrative spending. The company aims to reach a spending target of $20 billion in 2024, with further cuts planned for 2025 and 2026.

Furthermore, Intel announced the suspension of its dividend starting in the fourth quarter. This move is expected to provide additional financial flexibility and support the company’s efforts to improve profitability.

Market Reaction and Future Outlook

The disappointing financial results and the announcement of layoffs had a significant impact on Intel’s stock price. In extended trading, the company’s shares plummeted by over 19% to $23.47 per share.

Looking ahead, Intel provided a cautious outlook for the third quarter, projecting revenue of $12.5 billion to $13.5 billion, well below analysts’ expectations of $14.3 billion. The company also anticipated a loss of 24 cents per share, while analysts had predicted a profit of 3 cents.

Despite the challenges faced by Intel, the company remains a key player in the semiconductor industry. Its focus on cost-saving measures and efforts to improve profitability are crucial steps towards regaining investor confidence and ensuring long-term success.

Intel’s ability to navigate the evolving market dynamics and capitalize on emerging technologies, such as artificial intelligence, will play a vital role in its future performance. As the demand for advanced computing solutions continues to grow, Intel has the opportunity to leverage its expertise and innovation to regain its competitive edge.

Investors and industry analysts will closely monitor Intel’s progress in implementing its cost-saving plan and its ability to deliver improved financial results. The company’s strategic decisions and investments in research and development will be key factors in determining its future success in a rapidly evolving industry.

Overall, Intel’s second-quarter performance highlights the challenges faced by the company but also presents an opportunity for strategic transformation. By taking proactive steps to reduce costs and strengthen its financial position, Intel aims to position itself for long-term growth and success in the semiconductor market.