Intel cuts plan buoys share price despite Q3 results

Business news | October 28, 2022

By Peter Clarke

MPUs/MCUs semiconductor silicon

Revenue at Intel was down 20 percent on a year ago in 3Q22 as the chip giant comes under continued pressure in both the personal computer and data center sectors.

However, a plan to trim $3 billion in costs in the near term and $8 billion to $10 billion costs in the longer term lifted the share price in the same week the company successfully staged an IPO of its Mobileye business unit.

Intel’s sales revenue in 3Q22 was $15.3 billion flat with 2Q22 but down 20 percent on 3Q21. On this the company made a net profit of $1 billion.

The client computing and datacentre business groups which bring in the majority of Intel’s revenue were down year-to-year by 17 and 27 percent, respectively. “Despite the worsening economic conditions, we delivered solid results and made significant progress with our product and process execution during the quarter,” said Pat Gelsinger, Intel CEO, in a statement.

Earlier in October, unnamed sources had been reported saying Intel intends to lay off thousands of employees to slash expenses.

Intel’s outlook for fourth quarter revenue is $14 billion to $15 billion. As a result the company trimmed its annual outlook to between $63 billion and $64 billion. In 2021 Intel made a net profit of $19.9 billion on annual revenue of $79.0 billion.

Cost cutting

The cost cutting program is already reflected in the 3Q22 results with restructuring charges of $664 million that reflect initial efforts. Speaking on a conference call with analysts David Zinsner, Intel CFO, said: “In Q4, we expect to have additional restructuring charges of similar magnitude as we further rationalize our 2023 financial plan. He added: “Longer term, we will execute on continued structural cost savings and efficiency gains, which we expect to drive $8 billion to $10 billion in annual savings by the end of 2025, split roughly two-thirds in cost of sales and one-third in operating expense. These savings will be realized through multiple initiatives to optimize the business, including portfolio cuts, rightsizing of our support organizations, more stringent cost controls in all aspects of our spending and improved sales and marketing efficiency.”

On the same call CEO Gelsinger said: “Inclusive in our efforts will be steps to optimize our headcount. These are difficult decisions affecting our loyal Intel family, but we need to balance increased investment in areas like leadership and TD product and capacity in Ohio and Germany with efficiency measures elsewhere as we drive to have best-in-class structures.”

Earlier in the week Intel sold 41 million shares in an IPO of its Mobileye ADAS processor and software subsidiary. The shares sold at $21 each, above the marketed price of $18 to $20 and this raised about $860 million for Intel. This valued Mobileye at $16.7 billion, more than the $15.3 billion Intel paid for Mobileye in 2017 but a lot less than the $50 billion and $30 billion values ascribed to the company earlier this year.

Only 5 percent of Mobileye was offered up for sale, with the rest retained by Intel, and so the rapid climb of Mobileye’s share price to $27 would have taken Intel’s holding up to about $20 billion in value.