Chipmaker Intel Corp on Thursday cut its full-year profit and revenue forecast and Chief Executive Pat Gelsinger, asked about potential layoffs, told Reuters “people actions” would indeed be part of a cost reduction plan.
Intel shares jumped 6% in after-hours trade. They had slumped roughly 47% so far this year, underperforming both the S&P 500 index and the Philadelphia SE Semiconductor index.
In its earnings release Intel said it was focused on driving $3 billion in cost reductions in 2023. It also cut its capital spending forecast for this fiscal year to $25 billion from a previous forecast of $27 billion.
“The amount that we can do with respect to people costs is a minority of our overall cost structure. So driving efficiency in the factory network is way more important to our economics than people cost,” Gelsinger told Reuters, adding that adjustments of flexible workforces can be “quite immediate”.
The adjustments would start in the fourth quarter, he said, but did not specify how many employees would be affected.
Intel had 110,600 employees in late 2020, right before Gelsinger took the helm. That ballooned to 131,500 by early October this year.
A slump in PC demand and recession fears have muddied the outlook for the data center market, both big markets for Intel.
Intel’s “PC Client business was the silver lining as sales grew sequentially giving investors some hope that share loss has moderated materially,” said Summit Insights Group analyst Kinngai Chan.
Revenue from the client computing group, which accounts for Intel’s PC sales, rose to $8.1 billion in the third quarter from $7.7 billion in the second.
“We believe its data center share loss should also moderate going into next year,” said Chan.
On Thursday Amazon reported earnings, missing analyst expectation for its cloud business, AWS, which rose 28% year-on-year to $20.5 billion. AWS, and other cloud service providers, are big customers of chip makers, including Intel and key to their revenue growth.
Intel has been losing market share in the data center market and Gelsinger said it lost share again in the third quarter. “Our products weren’t shipping new products like Sapphire Rapids, but as those are now in full production and we’re going to be ramping those aggressively, we’re better positioned going forward than we have,” he told Reuters adding that it would take several quarters to ramp.
But he said Intel gained “meaningful” market share improvement in the PC segment in the third quarter.
Surging inflation has hit demand for computers and other gadgets, forcing electronics companies to cancel orders for components such as chips as they struggle to clear inventory.
PC shipments fell 15.5% in the third quarter, data from Counterpoint Research showed. Intel said it expects 2022 PC market to decline in the mid-to-high teens.
Still Gelsinger said Intel expected its total addressable market in 2023 to stand at 270-295 million units.
The company now expects 2022 annual revenue of about $63 billion to $64 billion, compared with $65 billion to $68 billion estimated earlier. Its original forecast was for about $76 billion. Analysts on average expected annual revenue of $65.26 billion, according to Refinitiv data.
Intel trimmed its full-year adjusted earnings per share forecast to $1.95 from $2.30.
