Intel suspends dividend, cuts $10B in costs: CEO reacts
Summary
TLDRIn a candid interview, Intel CEO Pat Gelsinger addresses the company's recent earnings report, acknowledging the pressure on the business and the stock. He discusses the challenges, including a weaker outlook and restructuring changes, emphasizing the company's commitment to a sustainable financial model for the future. Gelsinger outlines Intel's product and process milestones, the decision to accelerate AI PC production, and the impact of operational adjustments on margins. He also addresses concerns about the company's turnaround, emphasizing the importance of maintaining a strong culture while making tough decisions for long-term success.
Takeaways
- 📉 Intel's latest earnings report shows the company is under significant pressure.
- 📊 The top line was within the expected range, but the bottom line faced challenges due to lower margins and one-time issues.
- 🔧 Intel accelerated its AI PC production, impacting margins negatively.
- 🔄 Major restructuring is underway to create a more financially sustainable model.
- 🏭 The move to the Ireland factory had a significant negative impact on margins.
- 🛠 Operational changes and a new operating model are in progress to mature Intel's Foundry and products.
- 📉 Market recovery is slower than anticipated, affecting various cyclical businesses.
- 🚗 The auto and FPGA businesses are recovering more slowly, with inventory issues in the client business.
- 🌐 No significant changes in market share, with market conditions impacting Intel's performance.
- 💡 Long-term optimism remains with expectations of growth in AI PC and AI accelerators.
- 🇺🇸 U.S. manufacturing plans remain unchanged despite capex reductions to build a more efficient Intel.
- 👥 Headcount reduction by 15% to address inefficiencies while aiming to respect and support affected employees.
- 🏗 Focus on building a world-class Foundry and fabulous company to ensure long-term sustainability.
- 📉 Near-term challenges are acknowledged, but the vision is to transform Intel into a sustainable and iconic company.
Q & A
What was the primary concern for Intel's latest earnings report?
-The primary concern was the pressure on the stock and the business, including challenges with China export and a weaker outlook, which led to a major announcement about structural changes for the future.
How did the acceleration of the AI PC component production impact Intel's margins?
-The acceleration of the AI PC component production in the new factory led to lower margins, which had a significant negative impact compared to what was indicated at the beginning of the quarter.
What major structural changes did Intel announce?
-Intel announced a major restructuring, which is considered the biggest since the memory microprocessor decision four decades ago, focusing on a new operating model for Intel products and Intel Foundry for long-term financial sustainability.
How did operational challenges and market conditions affect Intel's outlook?
-Operational challenges, such as the move to the Ireland factory and the immaturity of the new operating model, combined with a softer market and slower recovery in cyclical businesses, moderated Intel's outlook.
What is Intel's plan regarding the US manufacturing expansion and the CHIPS Act?
-Intel's plan to build out US manufacturing remains unchanged, with projects being milestone-based and on track. The company continues to see momentum with the US Government's CHIPS program and maintains its commitment to being a world-class foundry.
What was the reason behind Intel's decision to reduce capital expenditure (capex)?
-The capex reductions are focused on building a more efficient Intel, as the company has made significant catch-up investments in recent years and is now looking to manage capital investments carefully in line with the new operating model.
How does Intel plan to address the headcount reduction and its potential impact on company culture?
-Intel plans to treat the headcount reduction with respect and dignity, focusing on changing the culture to be more efficient and identifying areas of inefficiency while maintaining the commitment to the success of the company.
What is the expected impact of the headcount reduction on Intel's turnaround strategy?
-The headcount reduction is expected to be a part of a 'clean sheet' approach to identify inefficiencies and improve the company's operations, which is considered healthy for a sustainable Intel in the long term, despite the near-term challenges.
How does Pat Gelsinger view the significance of the recent changes and challenges at Intel?
-Pat Gelsinger views the recent changes and challenges as a necessary part of transforming and rebuilding Intel, taking the steps seriously and with a commitment to create a sustainable company for the long term.
What is Intel's outlook for the third quarter and beyond?
-Intel's outlook for the third quarter is below consensus, with market recovery happening more slowly than expected. However, they remain optimistic for the long term, expecting slightly above normal growth rates in the fourth quarter and stronger product lines and AI accelerators in the following year.
How does Intel address the issue of market share and competition in areas like AI and data centers?
-Intel sees no market share changes from the beginning of the year and attributes the current situation to market effects. They are focusing on strengthening their products in AI and data centers and expect to regain share and continue growth as market conditions improve.
Outlines
📉 Intel's Earnings Report and Business Challenges
In the earnings report discussion, Intel CEO Pat Gelsinger addresses the company's financial pressures and stock performance. Despite challenges in China's export and a lower bottom line due to the acceleration of the AI PC production, Gelsinger credits the company's product and process milestones. He outlines the company's restructuring plans, emphasizing the need for a financially sustainable model for the future. The decision to move production to Ireland negatively impacted margins, and operational issues within Intel's new business models are being addressed. Gelsinger assures that despite the pressure and the need for cost reduction, the company remains committed to its journey, focusing on long-term health and innovation.
🛠️ Restructuring and Future Outlook for Intel
The second paragraph delves into Intel's restructuring, which Gelsinger considers the biggest since the company's decision to focus on microprocessors four decades ago. He explains the new operating model for Intel products and Intel Foundry, aiming for efficiency and long-term effectiveness. Gelsinger acknowledges the market's slower recovery and the impact on Intel's outlook, with cyclical businesses taking longer to recover and inventory issues in the client business. Despite these challenges, he remains optimistic about the long-term, with expectations of market recovery and product line strength in the coming year. The discussion also touches on the company's commitment to the US government's chip program and adjustments to capital investments to build a more efficient Intel.
💼 Culture, Turnaround, and Commitment at Intel
In the final paragraph, Pat Gelsinger discusses the impact of headcount reduction on Intel's culture and the company's commitment to turnaround. He emphasizes the importance of treating employees with respect during this transition and the necessity of these changes for a sustainable future. Gelsinger reflects on his personal connection to Intel, his commitment to the company's vision, and the seriousness with which he approaches the current challenges. He assures that the steps taken are in the best interest of Intel's long-term success, focusing on both financial performance and technological innovation.
Mindmap
Keywords
💡earnings report
💡chip giant
💡margins
💡AI PC components
💡restructuring
💡operating model
💡headcount reduction
💡dividend cut
💡capex cuts
💡market share
💡foundry
Highlights
Intel CEO Pat Gelsinger discusses the challenging quarter for Intel, noting pressures on the business and a weaker outlook.
Gelsinger highlights that the top line landed within the expected range, but there were challenges with the China export and lower margins due to the acceleration of AI PC components.
Intel made a major announcement about restructuring changes aimed at creating a financially sustainable model for the future.
Gelsinger acknowledges the surprise in margins due to the decision to move production to the Ireland Factory, impacting operational costs.
The new operating model, Intel Foundry and Intel products, is still maturing, and steps are being taken to improve it rapidly.
Market conditions are recovering more slowly than anticipated, affecting the outlook for Intel's cyclical businesses.
Intel is taking aggressive steps to combine product and process milestones with a sustainable financial model for the long term.
Gelsinger emphasizes the importance of treating employees with respect and dignity during headcount reductions.
Despite the challenging period, Gelsinger remains committed to the vision and transformation journey of Intel.
The third-quarter outlook is below consensus, with slower recovery in areas like the Auto industry and FPGA business.
Gelsinger mentions that there have been no meaningful changes in market share, indicating that the challenges are market-driven.
Intel's AI PC components and AI accelerators are expected to see stronger growth in the fourth quarter and beyond.
The dividend and capex cuts are aimed at building a more efficient Intel, with no changes in the company's strategy or U.S. manufacturing plans.
Gelsinger discusses the importance of building a world-class Foundry and managing capital investments carefully.
The headcount reduction of 15% is part of a strategic effort to create a more efficient and sustainable Intel, focusing on business and function efficiency.
Intel's new operating model aims to separate and optimize the company’s structure, focusing on best-in-class industry standards.
Gelsinger emphasizes his personal commitment to Intel's long-term success, viewing the company as part of his legacy.
Gelsinger reaffirms the importance of treating affected employees with respect during the restructuring process.
The restructuring efforts are intended to ensure Intel's sustainability in both product and financial performance.
Transcripts
Intel's latest earnings report very much
in Focus challenge quarter for the chip
giant I want to get right to Intel CEO
Pat Giger Pat good to see you as always
no matter what you report I I have to
give you credit uh Rainer shine you're
always here talking to Yao Finance after
these results we thank you for taking
the time um I I I don't know how else to
put this quarter um the stock is under a
lot of pressure um maybe we can go
through this line by line how much how
much pressure is your business under
right now yeah hey thanks sazy always a
pleasure to chat with you uh you know
the quarter we landed the top line
within the range we said we had the uh
you know challenges with the China
export but the big news of course was
the bottom line and uh for that uh it
was uh very much hey we accelerated the
aipc uh and uh that had lower margins as
we moved into our next Factory to
accelerate the ramp of it which was
negative and obviously some other
one-time things that we referenced uh as
well but was much more the Outlook where
it was a weaker Outlook as well as we
expect some of those challenges to
persist and we made a major announcement
about our structuring changes uh as we
look to the Future so overall a lot of
great product and process Milestones you
all say phase one of the journey you
know it's just stunning what we've been
able to accomplish and now time to take
pretty aggressive steps on the
financially sustainable model for Intel
for the future and that's what we've
rolled out you know we're very committed
to the journey that we're on what
surprised you I on the cost front as you
went through the
quarter well clearly uh as we made this
decision to move into our Ireland
Factory from our TD Factory had a quite
a large negative impact on our margins
from where we indicated at the beginning
of the quarter this is the right thing
to do get into the production factory
accelerate the volume ramp of our AI PC
components but it was a surprise and
that and some of our own operational
things as we said this new operating
model Intel Foundry Intel products you
know we're not mature yet and we're
making the steps necessary you know to
mature that rapidly and overall you as
we'd say you know the market was a
little bit softer some of our cyclical
businesses taken a bit longer to
recovery some of the inventory digestion
that we spoke about uh as well in areas
like our client business so I'll say all
of those put together you know moderate
our Outlook and we're taking the steps
for a more SU sustainably financially
effective Intel for the future this is
the biggest restructuring of Intel I'd
say since the memory microprocessor
decision four decades ago you know we
laid out the new operating model and
we're taking decisive steps to execute
on the process and product work that
we've done to now combine it with an
operating model to make us effective for
the long term Pat this is a this is
challenging stuff this has to test
every leadership principle you you've
learned over Decades of doing
this well you know anytime I have to go
to my Intel family and say sorry we have
to take steps to reduce our headcount
you know that is challenging you know
and we're going to do that with respect
and dignity because many of these are
you know just people that are so
committed to the success of Intel and we
also realize we have to combine you know
that heart with making the decisions to
make a healthy Intel the long term
that's the most important thing that
we've done this is a unique company a
company that truly bends physics and
chemistry in ways that are you know
barely seem possible until we've made it
common place and we now have to have
this new operating model Intel products
and Intel Foundry for sustainable
Financial results that allow us to
continue to execute that in
extraordinary Vision you know for
decades to come that's the tough steps
that we're rolling out yeah it's a
challenging period but this is what I
signed up for and committed you know to
do with this leadership team the third
quarter Outlook too um below consensus
as well what don't you see getting
better quarter over
quarter overall we see the market
recovering more slowly than what we
indicated at the beginning of the year
all of our cyclical businesses see
Improvement but less so and you know
we've seen that in the Auto industry the
fpga business each one of them are
recovering more slowly we have some
inventory in the client business that we
have to work through you know the data
center business remains primarily driven
by the AI buildout so the CPU portion
the Zeon portion of that is more modest
so I'll say everything is moving a bit
more slowly in the second half of the
year than we would have indicated
earlier you know but the overall Trends
we see more positive in the fourth
quarter you we see slightly above right
normal growth rates in the fourth
quarter and clearly as we go into next
year you know things like corporate
refresh aipc accelerate you know our
product lines are stronger and our new
AI accelerators start to ramp more
effectively so we're still optimistic
for the long term but we realize that
the second half of the year a bit more
challenged than we would have indicated
is this a market issue or or a product
issue
pet we see no market share changes than
we felt at the beginning of the year so
we'd say every one of the things that I
just said are Market effects uh in that
regard we see no meaningful change in
our market share you know position now
obviously areas like AI you know have
driven the discussion on where the
Investments and data center and Cloud go
so even as our products get to be
stronger in those areas and we've
launched our new products you know the
overall market conditions are ones that
we haven't found as much momentum as we
would have hoped so each one of these is
a market condition
and as we get stronger over time we'll
be better positioned to start regaining
share in some areas like Data Center and
accelerators and continue the strong
growth in our areas like
aipc of course we have to also say about
The Foundry and we're seeing a good
momentum in areas like our Advanced uh
packaging uh area of that business the
18a uh pdk release this is sort of the
starting gun for people to start their
production designs and so we're seeing a
lot of energy and that area but overall
market conditions a little bit more
modest and I think outside of the AI
sector you've seen that in multiple
announcements Pat you know I followed uh
your journey at Intel from day one I've
followed Intel for a long time I to be
frank I was surprised by the dividend
cut and the capex cuts for this year and
next year now there's a lot of people in
this country rooting for your comeback
to be that Beacon of Hope to make chips
in the country but how do you I guess
quiet their concerns that you know is
running out of time to turn itself
around and it won't be that Beacon of
Hope to make chips in the
country so you know as we laid out our
overall projects in the US and the chips
agreements they're all Milestone based
and we're comfortably inside of the
Milestones that we have so our plan to
build out us manufacturing unchanged we
continue to see great momentum with US
Government chips program office many
areas as that unique national champion
and many of those things are seeing very
good good progress in those areas so no
change in those plans the capex
reductions are very much focused on
building a more efficient Intel and
we've made many of the catch-up
Investments you know we radically
increased our Capital expansion and
capital Investments over the last
several years since I came back you we
had no shell capacity no sight capacity
we had to catch up on our process uh
technology so all of those Investments
are ones that we can now build on as we
build an efficient effective Foundry and
foundaries manage their capital
investment very carefully and as we have
laid out this new operating model of
Intel products and Intel Foundry we
should be scrutinizing those Capital
Investments carefully and that's the
decisions that we're making as we do
those and some of that adjustment is
just based on market conditions as well
where we see the growth rates in the
marketplaces so we could say our
strategy is unchanged we remain
committed to being that worldclass
Foundry stepping into that space for a
resilient supply chain for the world our
plans for our build outs our chips
Investments no change in those even as
we make these near-term adjustments to
be a more efficient supplier for the
future you mentioned the headcount
reduction Pat 15% that's a large number
um 15 16,000 people uh how concerned are
you that that reduction will will impact
the culture of Intel and then slow up
the turnaround at the company
you know given that we've now I say
gotten our process and product in place
we feel like we're in a position that we
can make these next steps we are doing
that clean sheet work of what a
world-class Foundry looks like what a
worldclass fabulous company looks like
and those efforts to clean sheet the
company are showing that we have many
areas of inefficiency we were still
built like a IDM 1.0 as we've said this
integrated company so being able to
separate those and look at best and
class companies has identified many of
those inefficiencies so I need to change
the culture to be focused in those areas
and these steps are consistent with that
building on the momentum of the last
three years they're also surgical you
know we're looking business by business
function by function what do we do in
GNA and sales how do we do our
development what's the best in class in
the industry for each one of those Which
business areas do I need to go up which
business areas am I over investing in so
we'd say all of this is healthy for a
sustainable Intel for the long term even
though it's challenging in the near term
and something we don't consider this you
know modestly we consider this very
seriously these are members of the Intel
family we're going to treat them with
dignity and respect even as we go
through these changes lastly Pat um for
investors who maybe don't know you like
you and I have talked for for some time
to be clear you take delivering a
quarter like this and news like this
which some people have not seen before
from Intel pretty seriously I you've
were at the company for a long period of
time for many years have came back to
turn the company around this is not
something where you I imagine you take
lightly delivering news like
this uh in no way uh sazy you know I
grew up at the feet of Grove noise and
more you know I feel as close to a
Founder that you possibly could of a 50
plus year old you know company this is
my company these are my people you know
this is the vision that we have laid out
to transform and rebuild a iconic you
know company this is what I signed up
for this is a challenging period and
with it none of this is easy none of
this is taken lightly we're going to
treat our people the right way but we're
going to build a sustainable Intel a
sustainable Intel in products and
technology and a sustainable Intel in
our financial performance as well that's
what the market expects of us you know
we have to have a company that's good
for the long term that's what we're
creating that's what we've signed up for
that's what I've signed up for and I'm
committed to finish the job that we
started
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