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Intel to shut four plants, lay off 6,000

By Eric Lai, Computerworld
January 22, 2009 10:00 AM ET

Computerworld - Amidst a bevy of bad news in the PC market, Intel Corp. took two corrective steps this week, aggressively slashing prices on chips on Monday and announcing Wednesday that it would close four chip plants and cut as many as 6,000 jobs.

Slideshow: Most notable IT layoffs of 2008

Analysts laid the blame for Intel's actions on weak PC sales combined with tight-fisted consumers choosing low-cost models such as netbooks. They also said impressive new CPUs from rival Advanced Micro Devices Inc. were a factor.

Monday's CPU price cuts by Intel , as much as 40% on some high-end desktop chips, were aimed at "stimulating demand to consume [chip] inventory," said Ian Lao, an analyst with In-Stat . "Fabs are already scaling back but there is always a buffer effect from when a change is started until we see that change on the street. They are trying to match the fab capacity to help limit job cuts if possible."

The price cuts were just the beginning. On Wednesday, Intel said it would close close two assembly and test facilities -- one in Penang, Malaysia, and another in Cavite, the Philippines. It said it would also stop production at two wafer-production plants: Fab 20, an older 200mm wafer fabrication plant in Hillsboro, Oregon; and D2, a facility in Santa Clara, California.

The changes will affect between 5,000 and 6,000 employees worldwide, Intel said. Not all those employees will lose their jobs, however, as Intel plans to offer some of them positions at other facilities, the company said.

Intel will gradually close the facilities between now and the end of 2009, it said. The closures are designed to "align its manufacturing capacity to current market conditions," the company said.

Like many technology companies, Intel has been hit hard by the U.S. recession, which also has affected the global economy. For its fourth quarter ended Dec. 27, 2008, Intel's profit plunged 90 percent from a year earlier, falling short of Wall Street estimates.

Intel's layoffs and plant closures follow even larger restructuring at AMD. The chipmaker said in the fall it would spin off its chipmaking facilities and focus on chip design. On Monday, AMD announced it would cut 1,100 jobs , or 9% of its workforce.

Both layoff announcements follow data last week that showed big trouble in the PC market. Shipments of PCs in the key fourth quarter fell 0.4% year-over-year, according to IDC Corp. PC shipments in the U.S. actually fell 3.5% year-over-year in the fourth quarter.

Stingy consumers dragged dollar sales down even more. Q4 revenue fell up to 20% year-over-year , the worst drop-off since mid-2001, said Gartner Inc.

Lao said the PC market downturn, while anticipated, was bigger than expected. "Even in the summer, sales were still ok. Then the floor started to drop out from under everything," he said.

The newly-lean AMD is also posing a challenge to Intel the first time in awhile, said Lao, with PC makers showing interest in AMD's low-priced notebook CPUs as well as its new high-end Phenom II CPUs. Even with its 40% cut to its Core 2 Quad Q9650 processor, Intel's chips remain pricier than its Phenom II rivals.

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