[Asia Economy Reporter Jeong Hyunjin] U.S. semiconductor company Intel has pledged to improve efficiency by cutting costs by $10 billion (approximately 14.2 trillion KRW) over the next three years. This move is interpreted as a response to growing investor concerns about profitability and efficiency amid a market freeze caused by recession fears.
According to CNBC and other outlets on the 27th (local time), Intel announced in its Q3 2022 fiscal year earnings report (July 3?October 1) that it will implement cost reductions of $3 billion next year and $8?10 billion by the end of 2025. Earlier, Intel CEO Pat Gelsinger stated during the Q2 earnings report that "we will reduce core costs this year and take additional measures in the second half."
Intel is expected to cut costs through layoffs. On the 12th, Bloomberg reported that Intel plans to lay off thousands of employees. These layoffs are expected to be announced as early as this month, and Bloomberg reported that some departments, including sales and marketing groups, could see up to 20% of their staff laid off.
The reason Intel is pursuing cost reductions is due to significant declines in demand for its main product, PCs, which has caused difficulties in its performance. Intel's Q3 revenue was $15.3 billion, down 20% compared to the same period last year. Net income was $1 billion, an 85% decrease from Q3 of the previous year.
In particular, the Client Computing Group, which accounts for the largest portion of Intel's revenue, posted $8.12 billion in sales, down 17%. This segment has been affected as PC demand declined due to reduced pent-up demand from the pandemic period and growing recession concerns.
Intel's Data Center and Artificial Intelligence (AI) Group and Foundry (semiconductor contract manufacturing) service revenues also fell by 27% and 2% year-over-year, recording $4.2 billion and $171 million, respectively. On the other hand, the AXG group, responsible for network-related sectors and graphics chips, saw sales increase by 14% and 8%, respectively, compared to Q3 last year.
Intel lowered its full-year revenue forecast, including Q4, from the initial $65?68 billion to $63?64 billion. This is below the market expectation of $65.26 billion.
The background for Intel's cost-cutting measures includes not only the decline in PC demand but also expanded semiconductor investments. Since taking the helm in February last year, CEO Gelsinger has declared a re-entry into the foundry business and decided on large-scale investments in Ohio and other locations. With hundreds of billions of dollars being invested, investors are concerned about Intel's profitability.
Following the announcement of earnings and cost-cutting plans, Intel's stock price rose nearly 7% in after-hours trading. Intel closed the regular trading session at $26.27, down 3.45% from the previous trading day. Intel's stock price has plummeted more than 50% since the beginning of this year.
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