Massive layoffs and cost cutting will decimate Intel’s already tiny 5G network business
Huge Loss & Restructuring:
In its August 1st press release detailing a $1.6 billion 2Q-2024 loss (mainly from it’s foundry business) [1.] Intel announced it was cutting more than 15% of its workforce by 2025 with most of those coming by year end. The company is also suspending its dividend starting in the fourth quarter of 2024.
Note 1. Intel Foundry, which reported a $2.5bn operating loss during the first quarter of 2024, lost an additional $2.8bn in Q2-2024. That business is seen as a U.S. strategic asset in a major move to bring back chip making to the U.S. from Taiwan, China and South Korea.
“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones. Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation,” said Pat Gelsinger, Intel CEO. “These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value.”
CEO/CFO Earnings Call prepared remarks:
“We are targeting a headcount reduction of greater than 15% by the end of 2025, with the majority of this action completed by the end of this year. We do not do this lightly, and we have carefully considered the impact this will have on the Intel family. These are hard but necessary decisions. Our actions will reduce OpEx (operating expenses) to approximately $20 billion in 2024, and we see a bigger impact next year, with 2025 OpEx targeted at $17.5 billion, more than 20% below prior estimates. We expect further benefits in 2026, with OpEx to decline in absolute dollars yet again. Even as we lower overall spending, we will continue to fund the investments needed to deliver our strategy.”
The company’s latest filing with the Securities and Exchange Commission (SEC) stated there were 124,800 employees as of December 2023, down from 131,900 a year before. Therefore, a 15% reduction could translate to the loss of 18,720 employees and we wouldn’t be surprised by total job cuts exceeding 20,000! In addition to layoffs, Intel is pushing older employees to retire.
CEO Pat Gelsinger wrote in a letter to Intel employees:
“Next week, we’ll announce a companywide enhanced retirement offering for eligible employees and broadly offer an application program for voluntary departures. I believe that how we implement these changes is just as important as the changes themselves, and we will adhere to Intel values throughout this process.”
The objective is to greatly reduce various operational costs (research and development plus marketing, general and administrative expenses) to about $20 billion this year and $17.5 billion in 2025, “with further reductions planned in 2026,” said Intel. That $17.5 billion would be about $4.2 billion less than Intel booked for these expenses in 2023, according to its last annual SEC filing, and a reduction of $7 billion compared with the figure for 2022.
Fitch Ratings downgraded Intel’s Long-Term Issuer Default Rating to ‘BBB+’ from “A-,” citing execution risks and potential negative rating actions. Fitch also affirmed Intel’s Short-Term IDR and commercial paper rating at ‘F2’. Fitch believes execution risk remains significant for Intel and that missteps could result in further negative rating actions.
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Analyst Comments:
Rosenblatt Securities analyst Hans Mosesmann reiterated his sell rating on Intel stock with a price target of 17. “We anticipate that the company (Intel) will continue to lose share to AMD as its manufacturing roadmap is tepid compared to that of the leading-edge player,” Mosesmann said in a client note.
Bernstein analyst Stacy Rasgon was particularly grim about Intel’s prospects.
“The company’s issues are now approaching the existential,” he said in a client note. “In other circumstances we believe we would now be having ‘going concern’ conversations with clients.”
Impact on Intel’s 5G Business:
The company’s website states: “From Cloud to Network to Edge: 5G Is Powered by Intel Intel-powered 5G networks deliver a powerful data-centric future where compute is fluid, intelligent, and pervasive—creating an evolutionary leap in agility and scalability.”
PHOTO Credit: Intel
Intel incorrectly states, “Intel is embedded throughout the 5G value chain, offering flexible performance, Intel® Xeon® Scalable processors, custom RAN configurations, accelerators, software, and a common toolchain.” Does anyone really believe that?
Intel wants 5G network equipment vendors to switch from custom ASIC silicon they design to its general-purpose processors (GPPs). But there has been very limited adoption of those processors in the radio access network (RAN) to date. Many telco executives remain unconvinced GPPs, especially based on x86, can measure up. Arguments about using the same platforms for multiple needs look spurious when most RAN compute is at the mast site, where it cannot realistically be shared with anything else.
Of the big three 5G kit vendors, only Ericsson says Intel is a good option for Layer 1 (PHY), the category of most demanding RAN software. Huawei and Nokia remain vehemently opposed to using Intel silicon in this area. As expected, most of Ericsson’s 5G products today are based on its own custom silicon, not Intel’s GPPs.
References:
https://www.intel.com/content/www/us/en/newsroom/news/actions-accelerate-our-progress.html#gs.d2jtpn
https://download.intel.com/newsroom/2024/corporate/Earnings-Call-2Q2024-080124.pdf
https://www.intel.com/content/www/us/en/wireless-network/5g-overview.html
From Aug 3 WSJ:
“Intel has consistently missed some key technology waves,” said Vish Narendra, CIO of Atlanta-based paper packing company Graphic Packaging International. “With the emergence of AI, they ceded more ground to AMD, Nvidia.”
A spokesperson for Intel said the company is “nearing completion of a historic pace of design and process technology innovation that is driving strong innovation across our portfolio and enabling new solutions for customers.”
“Intel is leading the creation of the AI PC category, and we are coming to market with an AI accelerator that will be attractive to enterprises based on an open ecosystem and compelling [total cost of ownership],” the spokesperson said. “Launching in the third quarter, Intel Gaudi 3 will take our accelerator performance to the next level—at just two-thirds the cost of competitive offerings.”
Intel manufactures chips for personal computers and servers used both by large cloud providers and enterprises in industries such as finance and insurance. In the past few years, the company lost about one-third of its cloud server business and about 10% of its enterprise server business to rival AMD, while remaining strong in PC sales, said Citi analyst Christopher Danely.
Analysts attribute the loss of share to how competitors outpaced Intel on chip performance because of a series of manufacturing stumbles. While Intel, which makes its own chips, was stuck figuring out manufacturing challenges, AMD, whose chips are manufactured abroad by TSMC, progressed to better performing generations, Danely said. However, Intel is on track to catch up next year, he added.
PC sales are a bright spot for Intel. They are getting a boost from a new crop of devices advertised as AI-ready. Revenue in the division housing PC chips rose 9% in the latest quarter from the same period a year earlier to $7.4 billion.
It remains to be seen whether Intel’s relative stability in some of its core markets will be enough to save a company that missed wave after wave of technology innovations, from the growth of mobile devices to processor advancements and, now, the AI boom.
Basu said he hasn’t seen any big innovations or advancements from Intel as the company “has become the same old.”
Whether Intel can execute on hugely expensive plans to build a U.S.-based chip foundry is another question. Danely said analysts are skeptical.
Yet Intel’s brand is still recognizable and trusted, so for both consumer and enterprise PCs and the server business, at least in the short term, Danely said, “Intel still works.”
https://www.wsj.com/articles/intel-disappointed-investors-for-corporate-customers-its-still-good-enough-eefaa821?mod=telecom_news_article_pos1
Microsoft has recently made cutbacks at its Azure for Operators business after struggling to win deals.
Intel, whose general-purpose silicon powers most data center servers, last week said it would cut 15% of jobs – a figure that equates to more than 18,000 roles, based on December reports – following a disastrous run of results. Non-core units often suffer during such retrenchment. In Intel’s case, that could mean the small telecom unit. It would be a setback for telcos that see general-purpose compute and the cloud as an answer to cost problems.
Staff numbers have fallen dramatically at the world’s biggest telcos outside Asia in the last decade with the outsourcing of jobs, sale of assets, focus on efficiency and slow creep of automation.
In the US, where laying off staff is easier, AT&T finished June with 146,000 employees, down from about 280,000 in 2017. Verizon’s headcount has fallen from 155,400 to 103,900 over the same period. In the UK, BT thinks it can finish the decade with between 75,000 and 90,000 workers, compared with 130,000 last year.
https://www.lightreading.com/5g/crisis-hit-european-telecom-sector-needs-a-reboot
An Intel crisis is a crisis for open virtual RAN, LightReading:
The hefty job cuts tearing through Intel pose a threat to the market for virtual radio access network products, which the chipmaker still dominates. For a long time, the chips embedded within mobile network equipment, supplied by the likes of Ericsson, Huawei and Nokia, have been purpose-built for that mobile network equipment and unsuitable for much else. The dream of figures in the tech industry, and parts of the telecom sector, is to sweep these out and replace them with the sort of general-purpose central processing units (CPUs) found in data centers. Common silicon platforms and software tools would bring economies of scale and attendant cost savings. Off-site servers hosting 5G software could be used for other applications.
But this virtualization or cloudification still accounts for just 3% of the worldwide market for radio access network (RAN) products, worth approximately $40 billion last year, according to figures shared by Omdia, a Light Reading sister company. On the chips side, it is also dominated by a single player – Intel. In early 2023, the silicon behemoth boasted a 99% share of all virtual RAN deployments, and there has been little sign of change since then. This all makes the huge cuts recently announced by Intel a massive threat to this nascent virtual RAN market.
After a sequence of disappointing results, the US chipmaker early this month said it would slash about 15% of jobs, a figure that equates to more than 18,000 roles, based on headcount at the end of 2023. Its goal is to reduce operating costs to $17.5 billion next year, from about $21.7 billion in 2023, and lower capital expenditure by a fifth, compared with earlier projections, to between $25 billion and $27 billion this year. Next year, spending will fall to between $20 billion and $23 billion, Intel has said.
Yet the cuts may go even deeper at non-core units. In mid-August, CRN obtained an internal presentation that talked about reducing costs by more than 35% at the sales and marketing group, which houses its global partner organization. There is also a persistent rumor, which refuses to go away, that Intel is trying to offload some of its telecom assets.
The company has, of course, already announced the spin-off of Altera. It was the $16.7 billion acquisition of this business in 2015 that furnished Intel with much of its telecom expertise. While Intel has focused historically on the CPUs for personal computers and data-center servers, Altera specialized in a type of chip called a field programmable gate array (FPGA), which can be coded for a specific purpose after it has been shipped. Altera also made the application-specific integrated circuits (ASICs) that commonly feature in traditional basestations.
The Altera spin-off at least removes a contradictory element. In proselytizing about virtualization and cloudification, Intel must persuade skeptics that general-purpose CPUs can measure up to more customized silicon on specific tasks, such as 5G workloads. Altera is about the opposite – pushing FPGAs and ASICs as forms of accelerated computing where general purpose falls short.
Ultimately due for an initial public offering, Altera could enjoy success, as it previously did, by selling purpose-built chips for basestations. But the much bigger telecom opportunity for Intel is in converting the purpose-built industry to the virtualization faith. Altera, then, arguably has greater value as a source of telecom expertise to FlexRAN, Intel’s software framework for virtual RAN. Unless there is a support contract between Altera and Intel’s network and edge group, access to this expertise may be complicated by the Altera spin-off.
At the same time, and despite those rumors, Intel would struggle to sell FlexRAN to another company. This is largely because it cannot be divorced from x86, the instruction set architecture for Intel’s chips. In fact, it is not even compatible with processors made by AMD, the only other big maker of x86 chips. “The way the license is written is that it can only be used on Intel processors,” said Nick Hancock, the director of AMD’s telco vertical, during a previous interview with Light Reading. “It is like having a car but not the keys.”
Partly for this reason, FlexRAN appears to have been in retreat. Ericsson, Intel’s biggest virtual RAN partner, claims to have avoided it, preferring to write virtual RAN software from scratch that it can deploy on AMD’s chips without major changes (or so Ericsson says). Samsung, another big Intel customer, has similarly left FlexRAN parked on Intel’s stall.
But Ericsson does use the software that Intel writes for network functions offloaded to custom silicon. For all its fanaticism about general-purpose processors, even Intel concedes that some functions need the oomph provided by accelerators, as more customized chips are called. Under the brand vRAN Boost, this Intel software has previously focused on a demanding function called forward error correction (FEC), itself a part of Layer 1, the category of RAN software that is hungriest for compute resources. Under Intel’s roadmap, however, other 5G functions will need accelerating in future.
The Altera spin-off and broader cuts would seem to endanger these activities. Intel has always been relatively coy about the hardware used for its accelerators, and it did not respond to various questions asked for this article, but Ericsson formerly described them as eASICs, a hybrid of the ASICs and FPGAs that are the remit of Altera. As with Altera, Intel gained this expertise when it bought a small company using eASIC as its name in 2018 and seated its 120 employees in the Altera unit, then known as the programmable solutions group. Conversely, the software produced for the FEC and other accelerated functions is thought to reside under the same roof as FlexRAN.
To critics, the growing customization of Intel’s virtual RAN products seems to defeat the entire purpose. In Granite Rapids-D, a forthcoming range, accelerators and fronthaul connectivity are tightly integrated with the CPU, forming what looks to some more like a system-on-chip than general-purpose processor. The same chip would seem like overkill for more humdrum data-center needs, like employing an exterminator to flush out a single wasp.
“How is that different from any other custom chip?” railed Tommi Uitto, the head of Nokia’s mobile networks business group, when he met Light Reading at this year’s Mobile World Congress. “It’s not a general-purpose processor. And if you build servers with only those CPUs, it would be ridiculous because you’d have all this overhead of hardware acceleration in the product cost and power consumption.”
Even so, at the very heart of Granite Rapids-D is the same x86 technology found across Intel’s other products. And separating any unit based on this intellectual property from the rest of Intel would be difficult if not impossible. A likelier outcome than a spin-off and sale is perhaps a shift in priorities away from virtual RAN, which has failed to make progress.
“I would say that the vRAN business has not grown during the past year for Intel,” said Joe Madden of analyst firm Mobile Experts, answering questions by email. Intel’s annual vRAN sales amount to just $100,000, he estimates.
Unfortunately, for operators persuaded of virtualization’s merits, there is still no feasible commercial alternative to Intel, despite the industry’s best efforts. Ericsson does not appear to have advanced beyond trials with AMD. A bigger shake-up of the market is promised by Arm, a UK-based licensor of an entirely different architecture from x86, known mainly because Arm-based chips power most of today’s smartphones. But Arm licensees including Oracle-backed Ampere Computing, AWS and Nvidia have made no visible progress in virtual RAN.
Indeed, despite being a huge client of AWS, Dish Network in the US continues to rely on Intel rather than AWS’s Arm-based Graviton processors for its virtual RAN. “We are still working on it,” said Ishwar Parulkar, the chief telecom technologist for AWS, at the Digital Transformation World event in June. “The challenge is porting software to Arm. Today, it is primarily Intel-based, and there is work to be done, and it is engineering work.
https://www.lightreading.com/open-ran/an-intel-crisis-is-a-crisis-for-open-virtual-ran
Fresh waves of job cuts have surfaced at Cisco Systems, which will slash dozens more workers in San Jose as tech companies eliminate hundreds of positions in the latest round of staffing reductions.
Cisco Systems has decided to chop another 53 jobs in the South Bay, according to an official WARN notice the legendary tech titan sent to the state Employment Development Department.
https://www.siliconvalley.com/2024/08/26/san-jose-cisco-tech-economy-jobs-layoffs-intel-amazon-google-facebook/amp/
Analysts tell Fierce Telecom that Intel may want to reduce its investment in its 5G telecom business as it focuses on artificial intelligence (AI) and cloud workloads, as well as its personal computer (PC) and foundry business – if the 5G radio access network (RAN) doesn’t recover – after its stormy second quarter results.
The Santa Clara, CA based chipmaker has recently posted a $1.6 billion loss for Q2 of 2024 and announced plans to lay off 15,000 employees. Fierce has already looked at how this will affect its PC and its data center markets and if the company is too big to fail.
“Many carriers have reduced spending over the past year or two, and the uptake of new equipment has been slow,” said Jack Gold, principal analyst at J. Gold Associates. “So all the chip suppliers, including Intel, have seen a difficult market over the past 12-18 months in telco. It’s likely the market will pick up, as telcos feel more confident we’re not going to see a worldwide recession, but it’s still challenging as profits are key to investments in new equipment.”
For Intel, “they indeed have a dominant position in the [virtualized] RAN space, with upwards of 80%-90% of that market,” Gold commented. “So they have been affected by the slowdown.” Gold added that new 5G chip buys by vendors like Samsung should be coming in the next couple of quarters.
AvidThink principal analyst Roy Chua said that although Intel dominates in the 5G vRAN and accelerator market, the company may not see 5G chips as crucial to its business. It won’t have an immediate impact on whatever’s on the market, but that could change in the future.
Unlike AI, cloud, desktop workloads or Intel’s foundry business, “I don’t know if they view it as core to their business,” Chua commented. “It could be a candidate for them to reduce investment or find a different path forward.” “Realistically, the 5G RAN market is not booming right now,” the analyst noted.
They continue to support their NEX group and are producing newer versions of Xeon for the edge and telco and radio access network (RAN) spaces, Gold said. “I don’t expect to see any major defections on the part of the equipment makers, at least not in the short term, which should keep Intel’s sales healthy,” he stated.
“Longer term, Ericsson has stated publicly they are working with Intel and its Foundry Services to produce chips, so that is a big plus, given Ericsson’s position,” Gold said. Rival Arm still has a very small share of the open RAN and vRAN market, although licensees like Qualcomm and Marvel are being aggressive, he said.
“So bottom line, I think the risk for Intel in telco has more to do with if the equipment market recovers sufficiently, rather than any risk for its financial troubles and layoffs,” the analyst concluded.
https://www.fierce-network.com/wireless/how-will-intels-troubles-impact-its-5g-business