Chip giant in crisis

Intel fires over 15 percent of its workforce

Due to the sluggish demand for processors for classic servers, Intel is taking a tough austerity course. The chip company announced on Thursday that it would be cutting more than 15 percent of its workforce. The aim is to save ten billion dollars in the coming year.

The job cuts at Intel could be even more drastic than announced in an email to the workforce: The press release spoke of a reduction of "more than" 15 percent - and the number of employees was given as 116,500 at Intel and a good 125,000 in the Group including subsidiaries.

"Costs too high, margins too low"
 Intel CEO Pat Gelsinger sounded quite dramatic in the email to employees. Intel's cost structure is "not competitive", he wrote: "Our costs are too high, our margins are too low." Last year's turnover was 24 billion dollars lower than in 2020 - but the number of employees was 10 percent higher. Decisions took too long and there were too many frictional losses in the system.

Intel's cost-cutting plans are bad news for the planned new chip factory in Magdeburg - even if the chip manufacturer intends to stick with the construction of the 30 billion dollar plant for the time being. Gelsinger emphasized that Intel intends to stick to its "IDM 2.0" (Integrated Device Manufacturing 2.0) strategy. This provides for an expansion of production capacities. However, the CEO did not say anything about the specific investment plans in Germany, France and Italy.

Survival strategy as a contract manufacturer
Gelsinger's strategy for Intel's survival includes becoming more of a contract manufacturer for other chip developers. The Group is to master the latest production processes in order to compete with established manufacturers such as TSMC from Taiwan. At the same time, Gelsinger skillfully positioned his company as a key element in plans to bring more chip production back to the West from Asia.

Intel has so far lacked a competitive special processor for artificial intelligence (AI) to compete with global market leader Nvidia. A few days ago, arch-rival AMD had started the race to catch up with the purchase of AI developer Silo AI.

From industry leader to laggard
Intel once dominated the chip industry, but then fell behind. A decisive moment was the lost battle for space in today's ubiquitous smartphones. Intel hoped to transfer its strength in the PC business to mobile devices - but more economical processors with architectures from the British chip designer Arm prevailed in computer cell phones. As a result, smartphone chips are not usually made by Intel, but by competitors such as Qualcomm or TSMC.

Intel now also has to worry about its position in the PC market. Apple switched the entire model range of its Mac computers to Arm chips developed in-house. This resulted in significantly longer battery life. In the summer, Microsoft also initially opted for chips with Qualcomm's Arm architecture for new Windows PCs with AI functions. Computers with Intel processors are set to follow - but these must first be launched on the market.