Intel suspends dividend, cuts $10B in costs: CEO reacts

Summary

In 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.