Intel is making massive salary and quarterly bonus reductions in its quest to reduce spending by $3 billion in 2023 that earlier included layoffs of more than 500 California workers. Thousands of workers in the 121,000 member global workforce are likely affected, although Intel did not enumerate how many workers will see the cuts.
The move follows a disastrous fourth quarter earnings report with a 32% year-on-year revenue decline and a forecast of a loss for the first quarter of 2023.
The salary cuts come amid massive layoffs elsewhere in tech, often in major firms, totalling 150,000 tech workers in 2022 and 68,500 workers in January, according to an analysis by 365 DataScience.
The Intel cuts announced on Tuesday include a 25% cut to CEO Pat Gelsinger’s base salary along with 15% base pay cuts for other members of the executive leadership team. There are 10% base pay cuts for vice presidents and Intel fellows and 5% base pay cuts for mid-grade 7 to upper grade 11 workers.
Workers with hourly wages and those below grade 6 are not impacted. A 401k match of 5% was reduced to 2.5%, while quarterly profit bonuses and some recognition programs were suspended. Annual bonuses and stock grants were not impacted.
Intel told workers: “These changes are designed to impact our executive population more significantly and will help support the investments and overall workforce need to accelerate our transformation and achieve a long-term strategy.”
Earnings season for 4Q is turning out dim for many companies in the chip industry mainly due to a drop in demand for PCs, smartphones and even some servers and excess chip inventories among manufacturers of such products. Samsung reported its lowest operating profit since 2014, and its chip division saw profits down by 97%. At SK Hynix, there was a $1.4 billion operating loss, the first since its founding in 2012.
At AMD, quarterly net income was down 98% year-on-year, even as the AMD data center business grew by 42% year-on-year, offset by a 51% decline in PC chip division sales. Intel had a decline in both PC and data center chips.
Gelsinger’s salary brought the ire of shareholders who rejected his pay package last May after he earned nearly $180 million in 2021.
Some Intel critics pounced on the pay cuts. “This is a horrible situation,” wrote Dylan Patel, an analyst at SemiAnalysis in a tweet. “PGelsinger believes it is better to pay a dividend that Intel cannot afford than to retain employees.”
In a longer article, Patel called it “an incredibly dumb move, as employees will become quiet quitters and lose morale…Intel, unfortunately, has to cut costs dramatically due to its immense amount of cash being burned, but they are doing it in the worst way.”
Patel said his financial model for Intel shows the company will be free cashflow negative in 2023. “Even with billions in subsidies from the US and EU Chips Acts, Intel faces a difficult choice due to deteriorating financials,” he added.
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Some CEOs view salary cuts as preferable to layoffs, which have been deep in the tech industry in recent weeks. The analysis by 365 Data Science said more than 150,000 people in tech were laid off in 2022, with another 68,500 in January.
The firm tabulated layoffs for several major companies in all of 2022 as follows: Twitter, 4,400 layoffs; Amazon, 18,000 layoffs; Meta, 11,000 layoffs; Microsoft, 10,000 layoffs; Alphabet, 12,000 layoffs.
Those tech companies and others “were on a hiring spree during the pandemic as the world moved online,” the analysis noted. “But this over-hiring isn’t sustainable in the current economic situation. In preparation for the recession, many resort to mass layoffs.”