Intel Corp. is cutting the base pay of some managers and its executive team as part of an effort to lower expenses by up to $10 billion annually.

Reports of the pay cuts emerged this morning. The development comes a few days after Intel posted its fourth-quarter financial results, which fell far short of analyst expectations. 

Intel will cut the base salary of mid-level managers by 5%, while senior managers are set to see a 10% reduction. The base pay of executives will be lowered as well. Most members of the Intel leadership team are set to see a 15% reduction, while the base compensation of Chief Executive Officer Pat Gelsinger will be cut by 25%.

Hourly and junior employees are not affected by the move.

Alongside the pay reductions, Intel is reportedly implementing a series of other cost-cutting measures. The chipmaker is lowering its 401(k) matching program from 5% to 2.5%, while also suspending merit raises and quarterly performance bonuses. Annual bonuses tied to the performance of Intel’s stock will continue to be issued.

“As we continue to navigate macroeconomic headwinds and work to reduce costs across the company, we’ve made several adjustments to our 2023 employee compensation and rewards programs,” Intel said in a statement. “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.”

Last October, Intel announced plans to reduce its annual expenses by $3 billion this year. The company hopes to increase the cost reductions to between $8 billion and $10 billion annually by the end of 2025. Last year, Bloomberg reported that Intel could lay off thousands of employees as part of the effort.

Although it’s reducing expenses in some areas, Intel is investing heavily to expand its chip manufacturing capacity. The company is building four new chip plants in Ohio and Arizona at a cost of about $50 billion. It has also committed to establishing a $21 billion processor manufacturing campus in Magdeburg, Germany, with two fabs. 

Intel is upgrading its chip plant network while facing mounting competition from Advanced Micro Devices Inc. and other rivals. That competition factored into the weaker-than-expected quarterly results Intel posted last week. The chipmaker reported a $400 million adjusted profit on revenues of $14.04 billion, a significant decline from the $4.5 billion adjusted profit and $19.5 billion in sales it posted a year earlier.

Lower consumer demand for personal computers also weighed on Intel’s earnings. Gartner Inc. estimates that PC sales plunged by 28.5%, to 65.3 million units in the fourth quarter, the most significant decline on record. The demand drop has also affected Intel rival AMD, which this week disclosed a 51% year-over-year decrease in revenue from its PC chip business.

Intel expects the headwinds to continue for the foreseeable future. The company’s newly released guidance projects a net loss of 15 cents per share on between $10.5 billion and $11.5 billion in revenue, less than what analysts had expected.

Intel’s long-term strategy for returning to revenue growth centers on its network of chip fabs. In 2021, the company announced plans to achieve “performance leadership” with its chip manufacturing technology by 2025. As part of the effort, Intel intends to roll several new semiconductor manufacturing processes over the next two years.

The company this month reaffirmed plans to begin mass producing chips based on three-nanometer technology in the second half of 2023. Intel’s three-nanometer, or Intel 3, process will reportedly be the last from the company to use the industry-standard FinFET transistor architecture. In 2024, the company plans to roll out a two-nanometer process that will use a new gate-all-around transistor architecture. 

Photo: Thomas Cloer/Flickr