Intel Remains Aggressive in Cost Cutting

Intel is the world’s largest chipmaker and extremely profitable, but it conducts itself as though it were in a dire fight for its life. At its annual Spring Analyst Meeting in New York, CEO Paul Otellini and other executives detailed the company’s turnaround with a hint that more layoffs are coming.

Otellini laid out the company’s vision for 2007 and beyond, announcing some new products as well and detailing Intel’s financial projections for the year. He said that the prior year, Intel outlined three steps to regain its footing: pick up the pace of product development, focus on efficiency, and look for new areas of growth.

It’s certainly done that. Centrino Pro, known by its codename Santa Rosa, ships next week. New Xeon and Core 2 processors have hit the market, as did the Viiv chipset. Intel  has seen its marketshare rise from just over 70 percent in the second quarter of 2006 to somewhere between 75 percent to 80 percent, Otellini said.

He also discussed layoffs. “One year ago, I talked about how Intel needed to add to its gene pool a focus on efficiency and costs that we didn’t have at the time,” he said. More than 10,000 employees were let go, and he said there will be continued headcount reduction this year. The first 1,000 to be let go will be at an outdated Flash manufacturing line in New Mexico. The Rio Rancho plant employs 4,700 total.

“I believe the metrics on this are quite good,” he said, saying that Intel would save approximately $2 billion in 2007 and another $1 billion in 2008.

Bottom-line growth is expected to exceed top-line growth in ’07/’08, which should be music to Wall Street’s ears, although the message was slightly mixed when CFO Andy Bryant later took the stage and said he wasn’t sure where Intel would find additional costs to cut.

Intel also decreased the layers and span of management and changed the decision-making processes, reducing the number of management layers within the company as part of “an intense focus on design for cost.”

To grow, Intel must broaden its product line, and to that end he discussed two new products on either end of the spectrum. Larabee, first mentioned at IDF in China last month, would be a programmable many-core x86 processor specifically designed for the high-performance computing and video-serving markets.

On the bottom end of the spectrum is Silverthorne, a system on a chip that would use one-fourth the power chips use now and be used in handheld devices, cell phones and other mobile Internet devices. By 2010, Otellini expects the Silverthorne chip would be one-ninth the size of current chips and use one-twentieth the power.

He predicted that new markets for mobile Internet devices, consumer electronics and ultra low-cost PCs, would be worth $10 billion each by 2011, and that these would be entirely new markets that don’t exist today.

Otellini said the common denominator for growth across all product lines is the Internet. “It’s driven by rich media and more users… that’s what attracts us. We’ve gone from text to multimedia to adding sound to adding video and now user added premium content,” he said. “Any way you look at this it’s driving the need for performance at the client end and the server end.”

But he thinks the laptop is on its way to surpassing the desktop, and sooner than IDC predicts. IDC predicts that in 2011, the total number of laptops sold will surpass the total number of desktops. Intel thinks it will happen in 2009.

“We make more money on notebooks than desktops. Notebooks also have a higher refresh rate, in part because they are often lost or dropped,” Otellini said. And it’s growing fast. Intel sees a 60 percent year-over-year growth rate in emerging markets. For many people, it’s likely their first computer will be a laptop, he predicted.

Intel’s 2007 strategy is to continue the flood of products, from Penryn to Centrino Pro to next-generation vPro and Viiv this year. Next year will see the release of Nehalem, a new architecture to replace Core, followed by Westmere in 2009, a 32nm shrink of Nehalem. In 2010, the Sandy Bridge architecture will replace Nehalem.

News Around the Web