Intel, Eyed for Billions in US Grants, Will Fire 15,000 Workers

Chipmaker Intel said Thursday (August 1) that it plans to lay off 15,000 people, a troubling sign for the Biden administration’s multibillion-dollar plan to rebuild the US chip manufacturing industry.

The layoffs will affect more than 15% of its workforce, Intel said. The announcement came as Intel CEO Pat Gelsinger told investors and staff that the company needed a massive restructuring to slash costs after posting a $1.6 billion loss in the second quarter.

Intel’s annual revenue fell by $24 billion from 2020 through 2023 even as its workforce grew 10 percent, a trend that Gelsinger called unsustainable. “This is painful news for me to share,” he wrote in a note to employees.

The majority of the layoffs will be completed by the end of the year, Intel said.

“These cuts are bigger than I would have expected, especially when the company hired so many people for the last few years,” said Patrick Moorhead, founder of Moor Insights & Strategy.

The layoffs will be targeted, Moorhead noted. Spreading them evenly throughout the company would have been more demoralizing, he said.

Other companies have surpassed Intel in multiple areas over the past several years. The company failed to establish itself in mobile devices as smartphones took off in the 2000s, started losing ground in PCs and data centers to Advanced Micro Devices in the late 2010s, and now trails far behind Nvidia in the red-hot artificial intelligence sector.

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But those Intel rivals mostly have their chips manufactured overseas, largely by Taiwan Semiconductor Manufacturing Company. Intel had emerged as the big winner of President Biden’s Chips for America program, with the administration announcing $8.5 billion in grants and $11 billion in loans for the company this year to help bring some manufacturing operations back to the United States.

But Intel has yet to receive those funds, and a Commerce Department spokesperson declined to say whether Thursday’s announcement would affect the grants. When announcing the $8.5 billion grants for Intel in March, the department had called it a “non-binding preliminary” agreement, with completion of a due diligence process required for the funds to be released.

Intel previously estimated that its new US factories would create 10,000 manufacturing jobs and 20,000 construction jobs.

The job cuts are part of a plan to cut $10 billion in costs in 2025.

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Intel also plans to winnow the number of products it makes; stop “non-essential work”; and suspend its dividend, starting in the fourth quarter.

Related:Intel Ships Its First Xeon 6 Chips for Data Centers

Semiconductors have become a renewed policy focus in Washington amid an intensified US-China rivalry. Chips are the brains of all computing devices, from mobile phones to supercomputers and smart weapons, and US officials have become alarmed that so much of the American supply is produced in East Asia.

The Biden-backed Chips and Science Act of 2022, which allocates $52 billion in grants and $75 billion in loans to support the domestic chip industry, has been praised by US executives as transformative, with Gelsinger calling it “the most important piece of industrial policy since World War II.”

But there have also been skeptics. Chips are a notoriously brutal industry, requiring billions of dollars of investments. Even if Intel ultimately gets federal money for expansion, its US-based factories will continue to face higher labor costs than peers in South Korea, Taiwan, and China.

Gelsinger said in March that Biden was pushing him to get the new federally funded factories up and running faster, and that Commerce Secretary Gina Raimondo “now has sales targets for me.”

Intel’s stock was down 19% to $23.54 in after-hours trading Thursday.