After-hours plunge of 20%! Intel's Q3 performance outlook disappoints, announces layoffs of 15,000 employees

According to the financial news app Zhitong Finance, Intel (INTC.US) released its second-quarter earnings report after the market closed on Thursday. The data shows that the second-quarter revenue was $12.8 billion, a 1% decrease, lower than analysts' consensus expectation of $12.95 billion. Excluding certain items, the company's earnings per share were $0.02, below analysts' expected $0.10 per share.

It is worth noting that the company's third-quarter performance guidance was somewhat disappointing, and it also announced plans to lay off over 15,000 employees. The company expects revenue in the next quarter to reach $12.5 billion to $13.5 billion, far below Bloomberg's analysts' consensus expectation of $14.38 billion. Excluding certain items, Intel expects to lose $0.03 per share, while analysts expected earnings of $0.30 per share.

Wall Street expects the company's total revenue to slightly increase this year, but it is still over $20 billion lower than the peak in 2021.

After the news was announced, Intel's stock plummeted by over 20% in after-hours trading, and as of the time of writing, the stock was down by 18.66% at $23.64. The company's stock has fallen by over 42% so far this year, making it the second worst-performing stock in the Philadelphia Semiconductor Index.

Intel stated that it plans to lay off over 15% of its approximately 110,000 employees. The company also announced that it will suspend dividend payments to shareholders starting from the fourth quarter, expecting this to continue until "cash flow improves to a sustainably higher level." It is worth mentioning that the company has been paying dividends since 1992.

CEO Pat Gelsinger said in a memo to employees, "I don't imagine the road ahead will be easy, and neither should you." He described these actions as "some of the most important changes in the company's history."

This outcome highlights the sharp decline Intel is experiencing. The company has dominated the semiconductor industry for decades but is now forced to sell cost-cutting measures and ensure funding for growth plans. While a massive spending plan is expected to restore its industry position, Gelsinger is still working to improve the company's products and technology fast enough to retain customers.

CFO Dave Zinsner said in an interview, "Revenue did not meet our expectations, and the financial situation did not meet expectations." He stated that layoffs are necessary to give the company a more sustainable business development model.

Gelsinger told employees that most of the layoffs will be completed by the end of the year, which is necessary to eliminate bureaucracy and improve decision-making efficiency.

He wrote, "Our costs are too high, and our profit margins are too low," and mentioned that he will address employee questions at an internal meeting. "We need bolder actions to address these two issues, especially considering the current financial performance and the outlook for the second half of 2024, which is more challenging than previously expected."

Additionally, this is the second time the chip manufacturer has announced earnings under a new business structure, showing its manufacturing business performance. Gelsinger stated that the restructuring is a necessary step to improve operational efficiency and competitivenessThe company's disclosed revenue is divided into product groups and manufacturing operations, with the factory undergoing a large-scale upgrade and expansion plan, which has significantly impacted profits.

Revenue from the contract manufacturing department is improving, with a year-on-year growth of 4% to $4.32 billion. The personal computer chip business also saw growth, with a 9% year-on-year increase.

Sales in the once most profitable key data center department have once again declined, dropping by 3% to $3 billion. In the field of accelerator chips used for artificial intelligence systems, this department has yet to achieve market share comparable to NVIDIA.

Previously, the company's business was taken away by many more capable competitors in dealing with the artificial intelligence boom. NVIDIA (NVDA.US) currently has quarterly sales more than twice that of its former competitors. The long-time lagging behind American semiconductor company AMD (AMD.US) has seen its valuation increase by over $100 billion, while Taiwan Semiconductor Manufacturing Company (TSM.US) is widely regarded as having the best production capabilities in the industry.

Looking ahead, Gelsinger still believes that Intel is on the right path. He believes that Intel's crucial manufacturing is catching up with and surpassing competitors, which will attract external customers and confirm the rationale for a series of new factory constructions.

The company plans to reduce spending on new factories and equipment by over 20% in 2024, with the current budget ranging from $25 billion to $27 billion. Next year's expenses will be between $20 billion and $23 billion