Intel on Tuesday announced that it would cut 10,500 jobs, or about 10% of its workforce, by the middle of next year as the chip maker attempts to regain its footing in an increasingly competitive x86 processor market.
The cuts, which come as part of a broad company overhaul that Intel launched in April, are expected to result in about $2 billion in savings in 2007, with savings growing to about $3 billion in 2008, company executives said in a press release outlining the restructuring. Intel plans to cut 7,500 jobs by the end of this year, with reductions happening in management, marketing and IT functions, as well as attrition and the result of previously announced actions.
Intel plans to cut 7,500 jobs by the end of this year, with reductions happening in management, marketing and IT functions, as well as attrition and the result of previously announced actions. In June, Intel said that it would shed its communications units in an effort to sharpen its focus on its core microprocessor business. In July, it announced that it would lay off 1,000 managers.
The cuts announced Tuesday will be more widespread in 2007 “as Intel improves labor efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and improves product design methods and processes,” the company said in its statement.
“These actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come,” Paul Otellini, Intel president and CEO, said in a statement.
Intel, which dominated the x86 processor market with a more than 90% share just a few years ago, has seen AMD chip away at its lead. The smaller chipmaker now holds about 26% of the market, according to the latest figures from Mercury Research.
“Intel got fat and comfortable,” says Gordon Haff, an analyst at Illuminata.
While the cuts themselves don’t come as a surprise, the number of layoffs “is fairly aggressive,” Haff said. He said the job reduction is similar in many ways to the approach used by HP CEO Mark Hurd, who has improved the computer maker’s financial performance with job cuts and other cost-cutting measures without drastic altering its overall strategy.
“Intel is really going after operating efficiency, rather than axing large areas of products,” Haff says. He says that should be good news for enterprise buyers since “more efficiency should translate to better prices over the long term.”
Intel has felt pressure from Wall Street in recent quarters. In July, it reported profits of $885 million for the second quarter, less than half of the $2 billion it reported in the same period a year ago. And Otellini has said he expects Intel’s annual profit to be about $9.3 billion this year, down from the $12.1 billion it earned in 2005.
Intel blames a slowing PC market, as well as pressure from AMD, for its flagging sales.
“Intel has lots of things to do [to get back on track], but slimming, focusing and executing on its roadmap would be a good start,” Haff says.
Already, Intel is stepping up the speed at which it’s getting products to market. It has begun shipping its new line of processors – including the “Woodcrest” Xeon and the “Conroe” desktop chip – designed to provide better performance and consume less power, characteristics that have helped push AMD’s Opteron into a growing number of enterprise data centers.
