Paying for mistakes of the past: Intel lost $18.5 billion on restructuring and write-off of assets

Intel’s quarterly report was structured in such a way as to pay sufficient attention to ongoing restructuring and cost cutting. The company revalued some assets downwards and also made it clear that capital expenditures would be reduced next year. In the third quarter alone, restructuring costs of $18.5 billion had to be recognized.

Image source: Intel

As noted in the company’s presentation, $3.1 billion of this amount was due to the revaluation of production assets associated with the production of chips using Intel 7 technology and commissioned mainly during the pandemic. It makes no sense to transfer part of this production capacity to a more advanced lithography, so $3.1 billion will have to be written off.

Another $2.8 billion came from expenses related to restructuring and cost reduction plans. Tax losses for the previous three years amounted to almost $10 billion. Mobileye and other divisions also underwent a revaluation of the so-called goodwill – the material equivalent of the company’s goodwill, which decreased by $2.9 billion. A total of $18.5 billion was recognized, which reduced the company’s profits. As a result, Intel’s net losses for the third quarter according to GAAP methods reached $16.6 billion.

Intel spent approximately $2.2 billion to cut more than 15% of its workforce, one of the measures that helped reduce operating expenses by $17.5 billion and non-product costs by $1 billion. The bulk of Intel’s workforce cuts to date already done. Capital expenditures for the quarter amounted to $6.5 billion, and in total for the year they should reach $25 billion. This amount is more than 20% lower than Intel’s original plan. However, if we take into account various types of compensation measures and investments of Intel’s partners, then in real terms this amount is reduced to $11 billion. Next year, Intel’s capital expenditures will fall within the range of $20 to $23 billion “dirty”, but in real terms they will be limited to the range from $12 to $14 billion. This will be achieved partly due to Intel having the required number of free production buildings, which can be quickly filled with equipment in case of need to set up the production of chips in larger volumes.

Costs for development, research, marketing and administrative needs this year will amount to $20 billion and will be slightly below Intel’s own early expectations. But next year the company plans to reduce this category of costs by almost 10% relative to the initial forecast. Next year, we recall, the company expects to reduce its total expenses by $10 billion.

As Intel representatives explained, operating profit in the third quarter was also negatively impacted by a write-off of $300 million associated with the company’s reassessment of its capabilities to sell Gaudi computing accelerators. In the end, she was unable to sell them for $500 million, although she planned to do this earlier.

Speaking about the losses of the contract division of Intel Foundry, the company’s management explained that the achieved amount of $5.8 billion includes a one-time write-off of $3.1 billion associated with the revaluation of equipment for the production of chips using Intel 7 technology (the former 10-nm process technology). During the pandemic, too much of it turned out to be put into operation, and within the framework of EUV lithography, to which Intel is rapidly moving, outdated equipment simply will not be useful, and therefore it will have to be written off. In the current quarter, excluding this write-off, Intel’s losses will remain at approximately the same level. By the way, as CEO Patrick Gelsinger explained, Intel’s services for contract packaging of chips for third-party clients are already paying for themselves, although the processing of silicon wafers in general continues to remain unprofitable.