The leading semiconductor manufacturer has announced large job cuts that could number in the thousands. The last big wave of layoffs took place in 2016 when around 12,000 people were put out of work.
Is Intel cutting costs?
The possible reasons for the company's decision are the need to cut costs and the difficult market situation, especially for PCs. Details of the layoffs could be announced as early as this month, during the release of last quarter's data on 27 October, reports Bloomberg.
Intel had 113,700 employees in July. Bloomberg News reports that some divisions, such as marketing or sales, could lose about 20% of their workforce.
Are falling margins the cause of layoffs at Intel?
Intel appears to be experiencing declining demand for its products, especially CPUs. Rising prices and reduced demand for electronics appear to be threatening the company's sales. In addition, through the cryptocurrency market crash, many miners have had to reduce mining or stop mining completely. The result has been a flooding of the market with used electronics, especially graphics cards. The company seems also struggling with competitors such as AMD, which is gradually increasing its market share.
During the announcement of its latest quarterly results, Intel reported sales falling as much as 11 billion below its forecasts. As a result, the company's margins have fallen significantly. They are already 15 percentage points below the average of 60 per cent.
Intel's CEO then also announced: "We are also lowering core expenses in the calendar year 2022 and will look to take additional actions in the second half of the year."
Are the company's employees in trouble?
Upcoming layoffs could reduce fixed costs by 10 to 15%, reports Bloomberg Intelligence analyst Mandeep Singh. He estimates that this would reduce costs by at least $25bn to $30bn.
According to Dell, Lenovo and HP, which use components from Intel, 2021 PC sales are down 15 per cent year-on-year, and the current decline in consumer demand could result in further problems for the company. In addition, the company appears to have lost its former technological edge.
Recent interference from the US government seems to be putting additional pressure on the sector's growth potential. They severely restrict sales of certain products to Chinese companies and mean that some of the extremely expensive production lines would have to be relocated to the country.
If through low margins and declining demand, the company is forced to make mass redundancies, this could result in a reduction in production resulting from layoffs of production workers.
It is possible that the high dividend of 5.83% might be at risk, although the sale of Mobileye (a subsidiary that develops autonomous driving technologies), could help find additional funds, Mandeep reports.
Intel Price, daily candels
Source: Conotoxia MT5
Nvidia's shares have lost as much as 53% since the start of the year, falling some 23 percentage points lower than the Philadelphia Chip Index, which measures the performance of the entire sector. They are currently below the 100, 50, 20 and 10-day moving averages and are in a downtrend.
Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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