Intel To Cut Operating Expenses By $1.5 Billion Through Next Year

The semiconductor giant announces that it plans to reduce its operating expenses by $500 million this year and another $1 billion next year to ‘drive improved execution and operational efficiency,’ which CEO Lip-Bu Tan says will result in an undisclosed number of job cuts.

Intel on Thursday announced plans to reduce its operating expenses by $500 million this year and another $1 billion next year to “drive improved execution and operational efficiency,” which CEO Lip-Bu Tan said will result in an undisclosed number of job cuts.

Announced in its first-quarter earnings report, the Santa Clara, Calif.-based company said this reduction in operating expenses is in line with its plan to streamline the organization, eliminate management layers and enable faster decision-making.

Intel did not say how many jobs this cost-cutting move will impact, but Tan told employees in a Thursday memo published to Intel’s website that “there is no way around the fact that these critical changes will reduce the size of our workforce.”

“We must balance our reductions with the need to retain and recruit key talent,” he wrote. “I will empower each of my leaders to make the best possible decisions aligned with our top priorities. These decisions will not be made lightly, and we will keep you regularly informed.”

Bloomberg reported Tuesday that the company was planning to announce a 20 percent reduction of its workforce this week. The firm declined to comment on that report.

In its earnings report, Intel said it will reduce operating expenses in research and development as well as marketing, general and administrative, which will result in restructuring charges. It added that it has not yet estimated how much these charges could be.

In his earnings statement Tan called the company’s first-quarter results “a step in the right direction but said “there are no quick fixes as we work to get back on a path to gaining market share and driving sustainable growth.”

“I am taking swift actions to drive better execution and operational efficiency while empowering our engineers to create great products,” he said. “We are going back to basics by listening to our customers and making the changes needed to build the new Intel.”

Intel said it has set its non-GAAP operating expense target to roughly $17 billion for this year, down from the original target of $17.5 billion. Its target for next year is $16 billion.

The company said it has also reduced its gross capital expenditure by $2 billion to $18 billion for this year. This figure is related to GAAP additions to property, plant and equipment.

In his Thursday memo to employees, Tan said these moves are part of his next step “to drive greater simplicity, speed and collaboration across the entire company” after he announced last week that he was flattening its executive team’s structure.

“To make necessary investments in our engineering talent and technology roadmaps, we need to find new ways to reduce our costs,” he wrote. “While we have taken significant actions in the last year, our current cost structure is still well above competitive benchmarks.”

Tan is referring to the more than 15,000 jobs Intel cut last year under former CEO Pat Gelsinger in response to deteriorating financial conditions.

With Tan’s push for Intel to “refocus on engineering,” the CEO said he is pushing to “remove organizational complexity” by asking his executive team to “take a fresh look at their respective [organizations], with a focus on removing layers, increasing spans of control and empowering top performers.” In some instances, he said, some teams are “eight or more layers deep.”

“I’ve been surprised to learn that, in recent years, the most important [key performance indicator] for many managers at Intel has been the size of their teams. Going forward, this will not be the case,” he wrote. “I’m a big believer in the philosophy that the best leaders get the most done with the fewest people.”

Prior to Thursday’s announcement, Tan, who became Intel’s CEO last month, made no secret about his desire to quash bureaucracy within the company in his bid to build a “new Intel” that will bounce back from multiple challenges, including a failure to gain traction in the data center accelerator chip market and growing competition in the CPU market.

“Most importantly, we will simplify the way we work. Bureaucracy kills innovation. In my career, I [have seen] how small, focused teams move very fast and innovate and take on incumbents, and we're going to practice that in Intel,” he said in his keynote at the Intel Vision 2025 event in front of partners and customers in late March.

Last Thursday, Tan made his first big move towards that goal by flattening the executive leadership team’s structure, according to a memo seen by CRN that was first reported on by Reuters. This involved making Intel’s business units, including the Client Computing Group and the Data Center Group, report directly to the CEO, among other changes such as the appointment of Sachin Katti as chief technology and AI officer.

“The number one thing we need to fix is our culture,” Tan wrote in the memo to employees. “It’s clear to me that organizational complexity and bureaucratic processes have been slowly suffocating the culture of innovation we need to win.”