Intel shares slide and chip maker looks to lay off staff due to decreased chip demand 

Written on 10/13/2022
Editor BizNews

Intel is planning a major reduction in headcount, to cut costs and cope with a sputtering personal computer market.

Current trends in the microchip industry are not looking good for chip makers, especially Intel, which is faring worse than others in the industry. This has come after a major decrease of around 20% in PC demand has decreased the demand for computer chips. The computer company is looking to lay off thousands of employees as earnings fall – while Meta, which is also facing a decrease in revenue due to reduced online ad spending, is hoping to take a chunk of the PC market with its new Meta Quest pro VR headset. As Meta teams up with Microsoft this could change the entire way in which workers interact with technology. More in these articles from Bloomberg and The Wall Street Journal – Ross Sinclair

Intel Is Planning Thousands of Job Cuts in Face of PC Slump

By Mark Gurman and Debby Wu

(Bloomberg) – Intel Corp. is planning a major reduction in headcount, likely numbering in the thousands, to cut costs and cope with a sputtering personal-computer market, according to people with knowledge of the situation. 

The layoffs will be announced as early as this month, with the company planning to make the move around the same time as its third-quarter earnings report on Oct. 27, said the people, who asked not to be identified because the deliberations are private. The chipmaker had 113,700 employees as of July.

Some divisions, including Intel’s sales and marketing group, could see cuts affecting about 20% of staff, according to the people.

Intel is facing a steep decline in demand for PC processors, its main business, and has struggled to win back market share lost to rivals like Advanced Micro Devices Inc. In July, the company warned that 2022 sales would be about $11 billion lower than it previously expected. Analysts are predicting a third-quarter revenue drop of roughly 15%. And Intel’s once-enviable margins have shriveled: They’re about 15 percentage points narrower than historical numbers of around 60%. 

During its second-quarter earnings call, Intel acknowledged that it could make changes to improve profits. “We are also lowering core expenses in calendar year 2022 and will look to take additional actions in the second half of the year,” Chief Executive Officer Pat Gelsinger said at the time. 

Intel, based in Santa Clara, California, declined to comment on the layoffs.

Intel’s last big wave of layoffs occurred in 2016, when it trimmed about 12,000 jobs, or 11% of its total. The company has made smaller cuts since then and shuttered several divisions, including its cellular modem and drone units. Like many companies in the technology industry, Intel also froze hiring earlier this year, when market conditions soured and fears of a recession grew.

The latest cutbacks are likely meant to reduce Intel’s fixed costs, possibly by about 10% to 15%, Bloomberg Intelligence analyst Mandeep Singh said in a research note. He estimates that those costs range from at least $25 billion to $30 billion. 

Gelsinger took the helm at Intel last year and has been working to restore the company’s reputation as a Silicon Valley legend. But even before the PC slump, it was an uphill fight. Intel lost its long-held technological edge, and its own executives acknowledge that the company’s culture of innovation withered in recent years.

Pat Gelsinger

Now a broader slowdown is adding to those challenges. Intel’s PC, data center and artificial intelligence groups are contending with a tech spending downturn, weighing on revenue and profit.

PC sales tumbled 15% in the third quarter from a year earlier, according to IDC. HP Inc., Dell Technologies Inc, and Lenovo Group Ltd., which use Intel’s processors in their laptops and desktop PCs, all suffered steep declines.

With PC prices stagnating and demand weakening, Intel also may need to pursue a dividend cut to offset cash-flow headwinds, Singh said. But Intel’s plan to sell shares of its Mobileye self-driving technology business in an initial public offering may ease those concerns, he said.

It’s a particularly awkward moment for Intel to be making cutbacks. The company lobbied heavily for a $52 billion chip-stimulus bill this year, vowing to expand its manufacturing in the US. Gelsinger is planning a building boom that includes bringing the world’s biggest chipmaking hub to Ohio. 

At the same time, the company is under intense pressure from investors to shore up its profits. The company’s shares have fallen more than 50% in 2022, with a 20% plunge occurring in the last month alone.

The shares slipped about 1% to $24.80 in New York on Wednesday morning. 

US tensions with China also have clouded the chip industry’s future. The Biden administration announced new export curbs on Friday, restricting what US technologies companies can sell to the Asian nation. The news sent shares of chipmakers tumbling anew, with Intel falling 5.4% that day.

Intel has been trying to regain its footing in the industry by releasing new PC processors and graphics semiconductors. A key part of its strategy is selling more chips to the data-center market, where rivals AMD and Nvidia Corp. have made inroads. On Tuesday, Google unveiled new Intel-powered technology for its server farms that will help speed artificial intelligence tasks.

Intel is now looking to pursue those goals as a leaner company.

David Zinsner, Intel’s chief financial officer, said after the company’s latest quarterly report that “there are large opportunities for Intel to improve and deliver maximum output per dollar.” The chipmaker expected to see restructuring charges in the third quarter, he said, signaling that cuts were looming.

Some chipmakers, including Nvidia and Micron Technology Inc., have said they’re steering clear of layoffs for now. But other tech companies, such as Oracle Corp. and Arm Ltd., have already been cutting jobs.

Meta’s Facebook Takes Aim at Workers’ PCs With New VR Headset

Company announces partnerships with Microsoft, Zoom to improve hybrid work for professionals

By Salvador Rodriguez

Facebook parent Meta Platforms Inc. stated its ambition to go after the professional computing market on Tuesday with the announcement of its most advanced virtual reality headset to date, the Quest Pro, saying it could be a better way to work than a personal computer.

Along with the new device, which costs around $1,500, Meta also announced partnerships with Microsoft Corp. and Zoom Video Communications Inc. that are expected to make the company’s VR headsets more useful in hybrid-work scenarios.

“For virtual reality to really reach its full potential, we need to get to the point where the 200 million people who buy new PCs each year for work can do some or all of their work even better in the metaverse,” CEO Mark Zuckerberg said during Connect, the company’s annual metaverse event.

The Quest Pro represents Meta’s efforts to build a high-end device geared toward professionals who are willing to pay top dollar for the most cutting-edge VR technology. The device features a thinner, more ergonomic design with an improved display and more sensors to track users’ motions and facial expressions. The headset runs on a new Snapdragon XR2+ processor built by Qualcomm Inc. that is optimized for VR, Mr. Zuckerberg said.

The company’s metaverse pivot to the enterprise market makes sense, said Daniel Newman, principal analyst at Futurum Research, an advisory business that focuses on digital technology.

“One thousand, five hundred dollars is a lot for a consumer, but it’s probably less than one business trip,” Mr. Newman said. “While video meetings haven’t stopped people from gathering live, there are plenty of meetings that could take place in a highly engaging and collaborative setting like the one Meta is trying to build.”

Preorders for the headset start Tuesday, and it will begin shipping on Oct. 25, Mr. Zuckerberg said.

The Quest Pro comes a year after the company changed its name from Facebook to Meta to reflect its ambitions in virtual and augmented reality. At the time, the company committed $10 billion toward the endeavor.

The company hasn’t disclosed sales of its VR headsets, but through the first half of 2022, revenue for the company’s Reality Labs division, which includes the Quest 2, came in at $1.1 billion, up nearly 37% compared with the year-earlier period, according to the company’s second-quarter report.

Meta also announced a partnership with Microsoft to bring Windows 365 and Teams to the company’s VR headsets next year.

“We think that VR can be very powerful for social connection, and with the Quest Pro, we want to bring more of that into the work context as well where Microsoft already has some incredibly successful products in the market,” Mr. Zuckerberg said.

This will include the ability for people wearing Meta’s face computer to join meetings in Microsoft’s Teams business-communications platform as virtual avatars. The integrations are scheduled to become available next year.

Microsoft sells its own mixed-reality HoloLens 2 headsets that are targeted toward professional users. Those devices start at $3,500.

Besides Teams meetings, Meta also announced that Quest users will be able to join Zoom calls using Horizon Workrooms in early 2023. This will allow users to appear in Zoom meetings as their virtual avatars.

“You should be able to take your avatar and virtual goods everywhere that you go,” Mr. Zuckerberg said.

Write to Salvador Rodriguez at salvador.rodriguez@wsj.com

Read also: