Intel Has Announced Cost Reductions Of Up To $10 Billion Through 2025

The CEO of Intel, Pat Gelsinger, speaks at the Mobileye Global Inc. IPO on October 26, 2022, at the Nasdaq MarketSite in New York. The self-driving technology company Mobileye Global Inc., owned by Intel Corp., priced one of the year’s largest initial public offerings above its marketed range to raise $861 million.

During extended trading on Thursday, Intel shares rose as much as 7% after the chipmaker announced lower-than-anticipated earnings guidance for the full fiscal year, but said it will deliver up to $10 billion in cost reductions and efficiency improvements.

How did the company perform?

  • Adjusted earnings per share were 59 cents, compared to 32 cents per share expected by analysts, according to Refinitiv.
  • According to Refinitiv, analysts predicted revenue of $15.25 billion, but $15.34 billion was achieved.
  • According to a statement, the quarter that ended on October 1 saw a 15% decline in revenue compared to the same period in the prior year. The previous quarter saw a 22% decline in revenue. The company’s net income decreased from $6.82 billion in the prior-year quarter to $1.02 billion.

On a conference call with analysts, CEO Pat Gelsinger stated, “We anticipate the economic uncertainty to persist through 2023.” David Zinsner, Intel’s chief financial officer, believes a global recession is a possibility.

Intel stated that it aims to reduce the cost of sales and operating expenses by $3 billion in 2023, with annual savings reaching $8 billion to $10 billion by the end of 2025. Bloomberg reported earlier this month that Intel planned to lay off thousands of employees in an effort to reduce expenses. The Oregonian reported days later that Gelsinger informed employees that cost-cutting measures would be implemented.

“Our efforts will include measures to optimize our headcount. These are difficult decisions that will affect our loyal Intel family,” Gelsinger said on Thursday’s conference call.

The Client Computing Group, which includes PC chips, generated $8.12 billion in revenue, a 17% decrease but higher than the $7.58 billion StreetAccount consensus. After two years of consumers purchasing computers to work, study, and play video games from home during the pandemic, Gartner reported that PC shipments decreased by nearly 20 percent in the third quarter of 2009.

Intel reported a decline in PC demand during the third quarter, primarily in the consumer and education markets, while device manufacturers reduced their inventories.

The company’s Datacenter and AI segment, which includes server chips, memory, and field-programmable gate arrays, generated $4.21 billion in revenue, a 27% decrease compared to the $4.50 billion StreetAccount consensus.

“The data center TAM is holding up better, although enterprise in China and some, but not all, cloud customers continue to show signs of weakness,” Gelsinger said. Intel’s market share growth in the data center segment was slower than the market average, he said.

The Network and Edge segment, which includes networking products, generated $2.27 billion in revenue, an increase of 14% but less than the $2.40 billion StreetAccount consensus.

During the quarter, Intel announced that MediaTek would rely on Intel Foundry Services for chip manufacturing, and the company broke ground on a $20 billion production facility in Ohio.

Mobileye, an autonomous driving technology company backed by Intel, began trading on the Nasdaq on Wednesday. Intel acquired the company in 2017 and retains control over it.

The full year’s projections were reduced by management. The company now anticipates $1.95 in adjusted earnings per share and $63 billion to $64 billion in revenue, compared to $2.30 and $65 billion to $68 billion, respectively, three months ago. This implies an almost 20% decline in revenue. Analysts polled by Refinitiv anticipated adjusted earnings per share of $2.15 and revenue of $65.26 billion.

Despite the after-hours movement, Intel shares are down nearly 49% so far in 2022, while the S&P 500 index is down approximately 20% during the same period.

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