Mohit Oberoi
4 min read
In This Article:
Intel (INTC) is reportedly considering laying off between 15% and 20% of its foundry workers, which could impact thousands of employees. The layoffs come after a brutal 2024 when the once-iconic chip company eliminated 15,000 positions in its biggest-ever layoff.
While we don’t have the official confirmation, the layoffs would be hardly surprising given the company’s focus on cost cuts amid mounting losses and cash burn, particularly in the foundry business, which has failed to take off significantly despite burning billions of dollars. In this article, we’ll discuss Intel’s outlook in light of the cost cuts and turnaround efforts.
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Intel is currently in its second inning of a turnaround under new CEO Lip-Bu Tan, who took over earlier this year. Notably, when his predecessor Pat Gelsinger took office in 2021, he also embarked upon “transforming” Intel under the IDM 2.0 strategy, which, in hindsight, we know did not go as planned.
Intel continues to lose market share and is majorly losing out to Nvidia (NVDA) in the artificial intelligence (AI) chip market. The pivot to the foundry business, where Intel makes chips for third parties under contract manufacturing, also failed to get traction while that segment’s losses mounted.
Tan has spoken about building a “new Intel” and has stressed that there are no “quick fixes” to the company’s woes. He admitted that the company lost out on talent and has talked about the need to revamp the company’s culture by fostering a “startup” mindset.
Sell-side analysts have been in a “wait and see” mode when it comes to Intel, which is reflected in its ratings. Of the 38 analysts covering Intel, 32 rate it a “Hold.” The stock is rated as a “Strong Buy” by only one analyst while five rate it as a “Strong Sell.” Intel’s mean target price is $22.42, which is 7.8% higher than the June 17 closing price. Its Street-low target price is $14, implying downside of 32.7%.
Notably, while Intel has slumped over 70% from its 2021 highs, it does not necessarily mean that the stock is undervalued, as the price action is not too out of sync with its financial performance. For instance, last year it posted revenues of $54.2 billion with an adjusted gross margin of 36% and adjusted net loss of $600 million.
