Intel has announced more cost-cutting and restructuring measures as it grapples with one of the most difficult periods in its 50-year history.
The changes include further separating the company’s chip-manufacturing and design divisions and halting factory projects in Europe. It will also reduce office locations by two-thirds.
These moves are part of CEO Pat Gelsinger’s broader strategy to streamline Intel’s operations and regain its footing in the competitive semiconductor market.
Intel’s Shift to a More Independent Manufacturing Division
Gelsinger has been gradually working to separate Intel’s chip-making operations from its design business since taking the helm over three years ago.
This shift includes the decision to report the manufacturing unit’s financials separately earlier this year.
Now, Intel plans to turn its manufacturing division into an independent subsidiary. The move would allow the unit to seek external financing and address concerns from potential customers about conflicts of interest.
The restructuring stops short of selling off the manufacturing business, an option that some analysts and investors have long recommended.
However, Gelsinger stated that Intel would continue to operate as one company, despite increasing distinctions between the two operations.
Gelsinger said:
“We’re better together as well as increasingly distinct to meet those other opportunities and requirements.”
Factory Projects Paused Amid Economic Headwinds
In addition to separating its manufacturing unit, Intel is taking steps to reduce capital expenditures.
The company announced a two-year pause on factory projects in Germany and Poland, while a manufacturing project in Malaysia will be put on hold until demand picks up.
Gelsinger emphasized that these decisions are part of Intel’s broader strategy to preserve cash amid declining sales and increased competition.
The decision to freeze these projects comes as Intel faces significant financial strain.
The company has been cutting costs, laying off employees, and slowing some expansion efforts in response to declining demand for its products.
Intel also faces pressure from rivals like Nvidia, whose chips have become essential in powering advanced artificial intelligence (AI) systems.
Intel’s Partnership with Amazon and US Defense Contract
Amid these cost-cutting measures, Intel announced a new multibillion-dollar partnership with Amazon’s cloud-computing division.
As part of the deal, Intel will manufacture custom chips for Amazon using advanced technology expected to go into production next year.
This agreement is expected to strengthen Intel’s position in the cloud-computing market, a critical growth area for the company.
Intel also confirmed it has secured up to $3 billion in funding from the Biden administration to boost manufacturing for the US defense industry.
This deal had been anticipated for several months. It helped lift Intel’s stock by 6 percent. Despite these positive developments, Intel shares remain about 60 percent below their peak over the past year.
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Streamlining Operations and Reducing Office Locations
As part of its ongoing efforts to streamline operations, Intel plans to cut the number of office locations by two-thirds by the end of the year.
Gelsinger noted that this move is aimed at creating a more efficient and nimble organization, centralizing teams that were previously scattered across various locations.
Gelsinger said: “Taking two-thirds of those locations away is a big statement about building a simpler, more efficient, and operationally more nimble Intel,”
These changes build on a series of cost-cutting measures Gelsinger outlined earlier this year, which included slashing thousands of jobs and reducing expenses by more than $10 billion in 2024.
The company has struggled to meet sales expectations in recent quarters, leading to further declines in its already battered stock price.
Intel’s Push for Recovery in the Semiconductor Industry
Since taking over as CEO, Gelsinger has been working to reposition Intel as a leader in chip manufacturing.
His ambitious plan involves catching up with Asian competitors such as Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung in chip-making technology.
Part of this strategy includes opening Intel’s factories to outside customers, a move aimed at increasing production capacity and generating additional revenue.
To finance its expansion efforts, Intel has struck several major deals with investment firms.
These include an $11 billion investment in a factory in Ireland led by Apollo Global Management and a similar deal involving facilities in Arizona with Brookfield Asset Management.
However, Intel’s road to recovery has been complicated by the recent boom in artificial intelligence.
While companies like Nvidia have benefited immensely from the surge in demand for AI-related chips, Intel has struggled to keep up, facing weaker demand for its own AI offerings.
Future Outlook: Navigating a Challenging Path
Despite the hurdles, Intel is pushing forward with its restructuring and expansion efforts, positioning itself for a long-term recovery.
The company’s recent partnerships and government contracts provide a glimmer of hope, but much will depend on its ability to execute its cost-cutting measures and regain its competitive edge in chip-making technology.
As Intel continues to refine its strategy under Gelsinger’s leadership, the coming months will be critical in determining whether the company can successfully navigate its challenges and emerge as a stronger player in the semiconductor industry.