Intel plans layoffs to cut costs by 35 per cent

Intel plans to cut jobs and “simplify programmes” to slash costs by more than 35 per cent by the end of the year

Intel's partner-centric sales and marketing group (SMG) plans to cut jobs, reduce marketing expenses and "simplify programmes end-to-end" as part of a directive to slash costs by more than 35 per cent by the end of the year, according to an internal presentation slide viewed by CRN.

Christoph Schell (pictured), Intel's CCO and the group's leader, provided the 35 per cent cost-cutting target in an all-hands meeting with sales and marketing employees on the fifth of August, said a source familiar with the meeting's content, who asked to not be identified to speak candidly about internal matters.

SMG houses Intel's global partner organisation, the channel's main conduit for working with the semiconductor giant.

In the meeting, Schell outlined his priorities for SMG and discussed how it will contribute to the chipmaker's new mandate - revealed on the first of August - to eliminate more than 15,000 jobs, or 15 per cent of its total workforce, and reduce overall costs by more than $10bn (£7.7bn).

In a statement to CRN, an Intel spokesperson said the company is "deeply committed to the channel and will continue to prioritise the success of the entire Intel ecosystem."

"We are becoming a simpler, leaner and more agile company that's easier for partners and customers to work with while ensuring we focus our investments on areas where we see the greatest opportunities for innovation and growth," the representative said.

"This is all about building a stronger Intel for the future, and our partners are integral to our future plans," the Intel spokesperson added.

The company declined to comment further.

Intel is making deep cuts across the company in response to what Intel CEO Pat Gelsinger has described as worsening financial conditions.

"Our revenues have not grown as expected—and we've yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low," said Gelsinger, CEO of Intel.

The semiconductor giant has been facing intensifying competition across multiple fronts, including the datacentre and cloud infrastructure markets, where Intel is facing pressure from AMD, companies developing arm-based CPUs like Ampere Computing and Amazon Web Services as well AI chip leader Nvidia.

The PC market is heating up too, with AMD taking CPU market share and Qualcomm making a revitalised push.

At the same time, Intel has sought to expand its chip manufacturing footprint with new factories in the West and compete with Asian foundry giants TSMC and Samsung through a revitalised contract chip-making business called Intel Foundry.

These efforts have required significant investments, including millions in subsidies from the US government's CHIPS for America programme and money from investment firms.

Intel seeks to 'simplify programmes end-to-end'

Schell called for a "simpler SMG" that focuses on the fundamentals.

The group is expected to work with Intel's business units— which include the client computing group and datacentre and AI Group, Intel's two biggest sources of revenue— to "focus" its "offering" by the third week of August.

To accomplish this, the slide said, SMG will have to "simplify programmes end-to-end" and adjust roles and responsibilities around contra-revenue spending to "enable faster decision [making] and [return on investment] measurement."

Those actions are expected to result in $100m in cost savings for the second half of this year and more than $300m in the first half of 2025.

"We need to disrupt our thinking," the slide said.

The next line in the slide makes clear the importance for SMG to communicate the impact of the cuts: "Be clear with employees, customers about what we stop doing."

Contra-revenue investments can refer to money Intel spends on OEMs and channel partners for things like market development funds (MDF) and co-marketing funds, according to a former Intel executive, who asked to not be identified to speak about internal matters.

Even when these kinds of funds are provided to OEMs, they can flow down to an OEM's channel partners, such as when an OEM hosts an event or training, the former Intel executive said.

These kinds of funds played an increasingly important role in Intel's ability to win business with partners as the chipmaker's products lost their competitive edge a few years ago, said the former Intel executive.

They added that the company started to reduce its spending in this area a couple years ago.

"Intel lost their mojo on product leadership, and the most valuable thing we were still able to offer the partners was the sales and marketing relationship and the funding," they said.

In Intel's 2024 Channel Chiefs profiles for CRN, the company said its MDF budget was decreasing this year after it simplified the MDF programme in 2023.

Plans to reduce coverage, overlapping roles

As part of Intel's larger cost-cutting push, SMG is expected to "drive maximum efficiency and focus" for coverage across accounts, marketing, communications and events, according to Schell's presentation slide.

While the presentation slide states that SMG will have to "make tough coverage decisions," it said the division will also "enhance indirect coverage muscle," a reference to the importance that Intel bestows upon the channel.

SMG also plans to reduce headcount relative to Intel's billings to "drive best-in-class seller, non-seller ratios."

One way SMG plans to cut jobs is by reducing overlap between different types of roles.

As one of three examples, the presentation slide cited overlaps between employees assigned to customer accounts and those working on vertical teams that focus on winning business within certain industries.

Another area where SMG sees redundancy is so-called "shadow organisations" that exist within business units outside the sales group, according to the presentation slide.

CRN's source said these areas of overlap have been known to create complexity for customers, who may have to interact not only with salespeople making commissions on deals but also those who don't make commissions and lack ownership of any account.

"It's been a massive problem. I think it's something that we were able to afford when we had over 90 per cent market share," the source said.

The leader of a solution provider who asked not to be identified said he has noticed the issue of overlapping roles between SMG and Intel's business units.

"If we have overlap, then you don't need one organisation or one set of people, because they're both doing the same thing," said the solution provider leader.

Source: 'we need to empower the channel'

While SMG will have to make big cuts to personnel and programmes, the source said that the organisation views the channel as one of the core areas Intel needs to protect.

"I think one of the things that is coming out of this is realising that we really need to empower the channel more. We need to go and make it easier for them to do business with us," the source said.

"We need to make them feel like they can make more money working with us. And we need to make it feel like everything's easier and less of a problem."

The presentation slide said that SMG must "protect" its core business, which it categorises into billings, measured design wins and decentralised coverage.

The call for SMG to defend its core business also encompasses sales to cloud service providers and OEMs, according to the source.

"We need to get back to retaking leadership in those areas and, at very bare minimum, not lose any more," said the source, who added that the chipmaker's line of Gaudi accelerator chips for AI workloads in datacentres "has to be successful."

Partners are waiting for details on how cuts will impact them

Wallace Santos, CEO of Maingear, a New Jersey-based Intel system builder partner, told CRN that he is waiting to learn about the cuts and how they will impact the channel.

"The people that we work with have zero understanding of what's going to happen. Everybody's hunkering down and just waiting to hear something," he said.

"It's imperative that they take the channel business seriously, because that's a profitable arm for the company," added Santos.

The news of big cuts coming to SMG didn't surprise one executive at a solution provider that partners closely with Intel.

The executive, who asked to not be named, told CRN that they understand Intel must make difficult decisions now because it has made a top priority out of building a contract chip manufacturing business on top of running its chip design business while the semiconductor giant experiences a protracted slump in demand.

"They're investing in the foundry. They have to do that. But they're trying to also get this business back on its feet at the same time, and doing two things at once is nearly impossible, so something's got to give," said the solution provider executive.

Even so, the executive said they are concerned about how the incoming cuts could impact Intel, even as their company and other Intel channel partners received an email from the chipmaker assuring the partners that the channel remains critical to the chipmaker.

"It's just a matter of, well, how much is the give?" they said.

Kent Tibbils, vice president of marketing at California-based distributor ASI, said he's waiting to see which Intel employees end up leaving the company by taking a voluntary buyout because he's seen how that has impacted SMG resources before.

"We went through this before. We [didn't] know what the impact [was] going to be to us. We didn't think it would be that great. But then a lot of people took the voluntary package. That obviously had some impact, and that could potentially happen again this time," he said.

Earlier this month, The Oregonian reported that Intel is offering voluntary buyouts to employees before the company commences layoffs in early October.

Employees considering a buyout or early retirement must decide by August 23.

Some cuts will depend on business unit decisions

When Intel announced its plan to make massive cuts on the first of August, Gelsinger said that the company plans to "simplify" its businesses this month by "conducting a portfolio review and identifying underperforming products."

CRN's first source said this translates into more cuts to Intel's product portfolio, which has already shrunk significantly over the past few years as the company doubles down on CPUs and seeks to gain a foothold in the higher-margin, higher-growth accelerator chip market.

For SMG employees, this means they won't know the full extent of which jobs will get cut until each business unit makes decisions on which products to cull, the source said.

SMG employees have responded to the news of the cuts with a "lot of frustration" and exasperation.

At the same time, the source said, while the cuts will be painful for the organisation - which went through at least one round of layoffs earlier this year - there is optimism that the changes pushed from the top of the company will result in a better SMG.

"Everybody you talk to who is upset about it also understands the necessity of the changes that need to be made," the source said.