Intel released its second quarter 2024 performance report, and its profit performance did not meet expectations. To reverse the situation, Intel will cut expenses across the board, with the most critical step being layoffs. Last year, Intel implemented a 5% layoff plan. This time, the scale of layoffs will be increased to more than 15%, and the plan will last throughout the second half of 2024.

Large layoffs are only a small part of the plan. Next, all expenses such as marketing, administrative expenses, and non-R&D expenses will be cut by at least $10 billion, decreasing year by year. Dividends will also be suspended from the fourth quarter to improve cash flow.

This combination plan is related to Intel's performance in the first half of the year: the performance met expectations, but it was not profitable.

The AI PC, which Intel has high hopes for, has lived up to expectations, with shipments reaching 15 million units in the first half of the year and more than 40 million units expected by the end of the year. At the same time, the key chip product Lunar Lake will also be mass-produced ahead of schedule, which is seen as the next catalyst for accelerating PC device updates. In this way, the product performance is still okay, isn't it? However, the financial report shows that the loss in the second quarter of this year reached $1.6 billion, a full four times that of the previous quarter.

It can only be a cost issue.

Intel CEO Pat Gelsinger said in a letter to employees, "This is painful news for me. I know it will be even more painful for you."

He attributed the poor profitability to high costs and low profit margins.

Intel's revenue in 2020 was higher than in 2023, and the number of employees was less than last year—more employees did not bring better benefits.

"We need to take bolder actions to address these two problems, especially considering our financial performance and prospects for the second half of 2024, which is more difficult than previously expected," he wrote in an open letter.

Pat Gelsinger has been CEO for about three years, and it has been a very difficult period for Intel—the largest chip manufacturer in the United States is facing the challenges of transformation in the era of artificial intelligence and the pursuit of competitors.

In his eyes, keeping personnel flow is an important way to ensure the vitality of the company. In 2022, he revealed in an interview with the podcast Decoder that 70% of Intel's leadership team at the time were new. But there is another problem: he doesn't like to train people.

"We don't have time to say: Let's do some on-the-job training," he said in the podcast. "We have to act, and we have to act quickly."

This time, the big layoffs are, to some extent, Pat Gelsinger's way of "acting quickly" to deal with pressure.

Intel was the big winner in the PC era. Because of the popularity of personal computers, it became the largest chip manufacturer in the United States.

However, after entering the era of artificial intelligence, Nvidia has become famous, and TSMC and Samsung have also emerged. TSMC is currently the world's number one foundry.

Recently, The Information revealed that OpenAI is working with several chip design companies to develop new chips, hoping to build a new giant worth more than AMD, Nvidia, and Intel. The market is changing rapidly, and Intel feels a huge crisis.

In March this year, Intel received a grant of $8.5 billion from the government. This is the largest grant provided since the United States passed the "Chips Act" in 2022. Intel will also receive an $11 billion federal loan and a very generous tax credit.

Behind the "Chips Act," Pat Gelsinger's multi-party lobbying is indispensable. But the grant has arrived, and Intel's performance is still poor, which will undoubtedly put pressure on him.

"We need to reduce the level, stop doing unnecessary work, and cultivate a corporate culture with a stronger sense of ownership and responsibility," he wrote.

Layoffs are just the first step, and the strategic transformation behind it will be another "quick action" for Intel to respond to the changes of the times.