Intel shares rise on earnings growth, layoff plans, billions in planned cost cuts

Shares of Intel Corp rose after hours on Thursday after the chipmaker beat Wall Street earnings estimates for the quarter and PC-chip sales came in slightly higher than expected, while the company again cut its full-year forecast and said it expects to cut costs. $3 billion in 2023, including cuts.

Intel INTC,
shares rose as much as 7% in after-hours trading and were up 5.4% in the extended session after falling 3.5% in the regular session to close at $26.27.

“Despite deteriorating economic conditions, we delivered solid results and made significant progress in our product and process execution during the quarter,” said Intel CEO Pat Gelsinger. “To position ourselves for this business era, we are aggressively addressing costs and driving efficiencies across the business to accelerate our IDM 2.0 flywheel for the digital future.”

In the third quarter, Intel set aside $664 million for restructuring costs and expects costs to decrease by $3 billion in 2023, “to increase from $8 billion to $10 billion through the end of 2025 through annual cost reductions and efficiency gains.”

“Overarching our efforts will be steps to optimize our headcount,” Gelsinger said in a phone call with analysts. “These are difficult decisions that affect our dedicated Intel family, but as we strive to have best-in-class structures, we must balance increased investments in areas such as leadership, product and capacity in Ohio and Germany with efficiency measures elsewhere.”

Intel also said it has created the IDM 2.0 Acceleration Office, which will be led by Stuart Pann, chief business transformation officer. The office will be tasked with “developing and implementing systems and processes to fully operationalize Intel’s IDM 2.0 model and support the company’s internal requirements and external customer commitments.”

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While specific job cuts were not mentioned, Intel is said to be making the announcement on Nov. 1, according to a recent video provided by Gelsinger to employees. Santa Clara, Calif.-based Intel last announced a major layoff in 2016, when it cut 12,000 jobs, or 11% of its workforce, and reported quarterly earnings the same day.

Intel reported third-quarter net income of $1.01 billion, or 25 cents per share, compared with $6.82 billion, or $1.67 per share, in the year-earlier period. After adjusting for restructuring costs and other items, Intel reported earnings of 59 cents a share, compared with $1.45 a share a year earlier.

Revenue fell to $15.39 billion from $19.19 billion in the previous quarter, the ninth consecutive quarter. Excluding the company’s divested memory business, the company reported revenue of $18.1 billion in the year-ago period. Gross margin fell to 45.9% from 58.3% in the previous period.

Analysts polled by FactSet estimated revenue of 34 cents on revenue of $15.31 billion, based on Intel’s forecast of 35 cents a share, in the range of $15 billion to $16 billion.

Segment breakdown: Customer computing sales fell 17% year-over-year to $8.1 billion, data center and AI group sales fell 27% to $4.2 billion, “network and edge” sales increased 14% to $2.3 billion and Mobileye sales increased by 38% and reached 450 million dollars. On Wednesday, Mobileye Global Inc. MBLY,
Shares began trading on the Nasdaq after the self-driving technology company’s initial public offering.

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Analysts polled by FactSet expected revenue from customer billing to be $7.58 billion; data center and AI group revenue of $4.67 billion; “network and edge” revenue of $2.4 billion; and Mobileye’s revenue was $472.2 million.

For the fourth quarter, Intel forecast earnings of about 20 cents a share on revenue of about $14 billion to $15 billion, and adjusted gross margin of about 45%. Analysts polled by FactSet had estimated fourth-quarter adjusted earnings of 70 cents a share on revenue of $16.32 billion.

Once again, Intel lowered its forecast for the year to about $1.95 a share on revenue of about $63 billion to $64 billion with a gross margin of 47.5%. For the year, Wall Street estimates earnings of $2.20 per share on revenue of $65.3 billion.

Chief Financial Officer David Zinsner said on the call that Intel is not releasing a forecast for capital spending at this time and that the company is sticking to the strategy and long-term financial model that was communicated at the investor meeting in February.

Last quarter, Intel lowered its forecast for the year to about $2.30 per share on revenue of about $65 billion to $68 billion with a gross margin of 49%. As recently as late April, Zinsner said he was comfortable with a gross margin forecast of 51% to 53%; Last year, Gelsinger promised that margins would remain “comfortably above 50%.”

Two quarters ago, Intel doubled down on an upbeat forecast of about $3.60 a share on revenue of about $76 billion with a gross margin of 52%, putting it under heavy pressure to deliver in the second half of the year.

Last quarter, Zinsner said the company hoped to return to the 51% to 53% range in the fourth quarter.

Intel shares are down 49% year to date. During the same period, the Dow Jones Industrial Average DJIA,
— which counts Intel as a component — fell 12%, the PHLX Semiconductor Index SOX,
Down 40%, the S&P 500 index SPX,
20% fell and the tech-heavy Nasdaq Composite Index COMP,
decreased by 31%.

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