Intel Announces Over 15,000 Job Cuts Amidst $8.5 Billion U.S. Government Aid for Chip Manufacturing Revival

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Intel Announces Over 15,000 Job Cuts Despite Receiving Billions in US Aid

Intel has disclosed plans to eliminate 15% of its workforce, translating to over 15,000 positions, amid efforts to recover from lackluster performance. This decision comes despite the U.S. government's announcement in March to allocate at least $8.5 billion in support of Intel's efforts to revamp its chip manufacturing capabilities within the United States, a move that may provoke concern among taxpayers.

Intel announced a 1 percent decline in its year-over-year revenue for Q2. CEO Pat Gelsinger, during today's earnings conference, expressed the company's serious approach to this downturn, stating, "This situation is taken with utmost seriousness, and we've thoroughly evaluated its effects on our Intel community. While these choices are difficult, they are essential. Nonetheless, these cutbacks will not hinder our execution strategy."

Intel announced that the layoffs would impact departments such as sales, marketing, and administrative functions, as part of its broader strategy to reduce expenses. This action comes after the company previously declared a 5 percent workforce reduction last year. Following this announcement, Intel's shares dropped over 17 percent in after-hours trading.

“There are numerous positions involved,” says Patrick Moorhead, the principal analyst at Moor Insights & Strategy, a consultancy specializing in the semiconductor sector, speaking to WIRED. Despite this, Moorhead views the selective nature of the planned job cuts as a good indication, rather than indiscriminate reductions. “The fact that a company is making layoffs doesn’t necessarily indicate a problem; rather, it's the approach that matters to me,” he explains.

Intel is facing difficulties in implementing a complex strategy aimed at revitalizing its operations by concentrating on producing semiconductors for third parties via its foundry division and adopting advanced manufacturing techniques more rapidly. In February, the firm announced that its fast-forward plan for fabricating state-of-the-art chips was progressing as planned, with a commitment to rise to the position of the world's second-largest foundry by 2030. Intel confirmed today that it remains on course to achieve these objectives.

In March, Intel was granted the largest subsidy to date by the U.S. government under the CHIPS Act, a law enacted in 2022 that allocates $52.7 billion for the repatriation of semiconductor production and funding for research and employee education in the field. Additionally, the firm will benefit from tax deductions as high as 25 percent for investments totaling up to $100 billion and can access federal loans amounting to as much as $11 billion.

Intel's investment of $8.5 billion is set to be allocated for the construction of manufacturing facilities in Arizona, New Mexico, Ohio, and Oregon. The company has announced that this financial commitment towards these semiconductor fabrication plants will lead to the generation of more than 10,000 jobs at Intel, 20,000 positions in construction, and several additional jobs in related sectors. “Intel's financial influx is directed towards establishing factories,” states Moorehead from Moor Insights & Strategy. “This endeavor is ongoing and is expected to result in significant employment opportunities.”

For many years, Intel thrived due to the popularity of personal computers. However, it missed the opportunity during the smartphone boom, losing ground to processors using Arm's architecture. Lately, Nvidia has gained significant attention for its role in developing chips crucial for AI training, initially being recognized for its graphics chips in the gaming industry. Moreover, Intel has lagged in production capabilities compared to its rivals, TSMC in Taiwan and Samsung in South Korea.

The US administration is financially supporting Intel's revitalization efforts, recognizing the paramount importance of sophisticated semiconductor technology in maintaining economic and strategic global dominance. The recent pandemic underscored the susceptibility of numerous American sectors to disruptions in the global supply network. Furthermore, these high-tech semiconductors are essential for the development of artificial intelligence, which is rapidly becoming a major national priority.

Currently, the United States produces 12 percent of the global semiconductor supply, a decrease from 37 percent in the 1990s. According to projections by the consultancy McKinsey, the semiconductor market is expected to see significant expansion this decade, increasing from a value of $600 billion in 2021 to over $1 trillion by the year 2030.

Dan Hutcheson, a specialist at Tech Insights, notes that Intel's decrease in earnings is indicative of a continuing trend towards data center computing with an emphasis on artificial intelligence. Hutcheson points out, "Intel once dominated the data center space. However, in recent times, major hyperscale operators have shifted their attention towards AI and GPUs, creating data centers entirely dedicated to artificial intelligence."

Hutcheson believes that while Intel's broad plan appears logical, the recent reductions indicate the company is facing challenges in addressing the internal issues that initially led to its lagging position.

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