Intel Cuts Wages and Suspends Bonuses Following Catastrophic Quarter

(Image credit: Intel)

Intel on Tuesday said it would cut wages and suspend bonuses for all of its employees above midlevel ranks, including top management, following last week's disastrous financial results. The move affects all managers as well as engineers. The company says that the pay cuts will enable it to lower operating costs and save money for transformation and strategic initiatives. 

Base pay for all employees above midlevel ranks will be cut by 5% effective March 1, reports OregonLive. Meanwhile, the base salaries of vice presidents will be reduced by 10%, senior vice presidents will see a 15% cut, whereas chief executive Pat Gelsinger's compensation will be reduced by 25%. It's noteworthy that executive pay tends to have heavy stock-based compensation, so the cuts could be less severe than they appear on the surface. However, Intel's stock has also been punished of late, being roughly half of what it was the year prior.

Hourly employees will not see their wages cut, and their annual bonuses will remain in place. Yet, they are not getting any raises this year. Furthermore, Intel suspended profit-sharing bonuses (which is unsurprising as Intel posted a huge loss), employee recognition programs, and reduced 401(k) retirement plan matching payments to 2.5%, or by half. 

"As we continue to navigate macro-economic headwinds and work to reduce costs across the company, we've made several adjustments to our 2023 employee compensation and rewards programs," a statement from Intel to Tom's Hardware reads. "These changes are designed to impact our executive population more significantly and will help support the investments and overall workforce needed to accelerate our transformation and achieve our long-term strategy. We are grateful to our employees for their commitment to Intel and patience during this time, as we know these changes are not easy." 

Intel is facing uncertainties for its key client computing and data center business units that together account for around 78% of the company's revenue, which is why it did not make any predictions about its 2023 revenues and profits last week. Meanwhile, the company announced that its earnings in the first quarter would drop to a range between $10.5 billion and $11.5 billion, down from $14 billion in the fourth quarter, an unprecedented drop. 

While Intel's client computing group that sells CPUs and chipsets for client PCs is affected by weak demand for new systems, the company remains optimistic about demand for client computers in the second half of the year.  

The situation with Intel's data center group is more severe. On the one hand, Intel has a rather competitive 4th Generation Xeon Scalable 'Sapphire Rapids' processor with up to 60 cores, but on the other hand, this CPU launched over a year late, which is why it has to compete against AMD's EPYC 'Genoa' offerings with up to 96 cores that beat it in cases where core counts matter. Datacenter CPUs tend to drive profits for companies, so if Intel has to cut prices of its Sapphire Rapids processors to sell them, its profitability will be severely affected.

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(Image credit: Intel)

(Image credit: Intel)

(Image credit: Intel)

(Image credit: Intel)

(Image credit: Intel)

But Intel seems to have a different opinion about the future of PC market. The company is confident that the total available market of PCs is about 300 million units a year, and it predicts PC TAM to be in the range between 270 million and 290 million in 2023, Intel disclosed at its recent PC TAM event for analysts and investors. Furthermore, Intel competes against AMD pretty successfully in the PC space (at least based purely on unit share), so perhaps its aggressive actions are aimed not only at AMD, but at Apple, which eats the sales of Intel's customers like Lenovo, HP and Dell. 

But it looks like, for now, AMD suffers more than Apple. While the company is particularly strong with its datacenter-oriented EPYC CPUs, it is relatively weak in the PC market, which is why Bernstein Research cut its per share target for AMD from $95 to $80.