Intel shocked employees Tuesday evening with word that it is sharply cutting employee compensation after reporting miserable financial results last week.
The chipmaker said it will slash base pay for employees above its midlevel ranks by at least 5% effective March 1, according to employees who heard the company’s announcement. Vice presidents will take a 10% cut, more senior executives will have a 15% haircut, and CEO Pat Gelsinger will get a 25% reduction in his base pay.
Hourly employees aren’t getting a pay cut and annual bonuses will remain. But Intel is cutting other incentives for all employees effective immediately.
It has suspended merit raises for all employees, suspended quarterly profit-sharing bonuses and employee recognition programs, and cut 401(k) retirement plan matching payments by half, to 2.5%.
“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,” Intel spokesperson Will Moss said in a written statement. “We are grateful to our employees for their commitment to Intel and patience during this time as we know these changes are not easy.”
The website SemiAnalysis first reported Intel’s pay cuts, which follow on the heels of layoffs Intel announced last fall. Intel hasn’t disclosed how many people lost their jobs in Oregon, its largest site, but the company reported more than 500 layoffs in California.
The chipmaker sought to eliminate $3 billion in spending amid a steep fall in microprocessor demand from PC manufacturers and data center operators during 2022.
Intel’s outlook has continued to darken. The company reported Thursday that sales were down 32% last quarter, and it expects a 40% drop in revenue this quarter compared to the same period a year ago.
“We realize that we stumbled, we lost (market) share, we lost momentum,” Gelsinger told Wall Street analysts last week. But he indicated that Intel believes the worst is over: “We feel that stabilized this year.”
Investment analysts have warned that Intel’s “atrocious” financial results might prompt the company to reduce its quarterly dividend, which could trigger a major selloff in the stock.
Cutting employee compensation could help shore up Intel’s finances without more layoffs, but it could also push workers to leave the company for new jobs. Stock-based compensation represents an important portion of Intel’s total pay package, and workers had already been contending with a sharp decline in Intel’s share price.
Intel shares closed Tuesday at $28.26, a little more than half as valuable as they were last spring.
Tuesday’s news is also certain to devastate morale.
Employees said Gelsinger delivered the message in a somber, companywide address Tuesday evening. They said he sought to rally employees by referencing hard times Intel endured during the 1980s, before it emerged as the world’s dominant chipmaker. He suggested the cuts could be reversed if Intel’s fortunes improve.
Intel lost the pole position in the industry over the past few years after a succession of manufacturing stumbles, and it’s far from clear whether Gelsinger can engineer another comeback. The company has committed to spend billions of dollars on new factories in Arizona, Ohio and Europe and says it has picked up its pace for introducing new generations of its chip technologies.
But rival Taiwan Semiconductor Manufacturing Co. continues to make its own advances, and many other chip companies, among them AMD and NVIDIA, contract with TSMC to make their chips. That has enabled them to take market share from Intel even as the broader market cools.
Intel didn’t say how many workers qualify for the pay cuts, but Intel’s compensation structure is weighted heavily toward its upper ranks. The reductions will have a profound impact in Oregon, home to Intel’s most advanced research and more than 20,000 employees.
In a rough calculation, state economist Josh Lehner estimated Intel’s pay cuts could reduce Oregon’s aggregate wages by $150 million to $200 million – about 0.15% of all wages statewide.
— Mike Rogoway | [email protected] | 503-294-7699
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