Big Layoffs Part of Intel’s Efficiency Push

Intel’s restructuring announcement today included specifics on its plans
to reduce headcount and expenses.

Earlier this year, Intel CEO Paul Otellini said he was on a
to cut at least $1 billion in expenses from the chip giant’s
budget, though no major staff cuts were expected at that time.

Today, Intel said it expects to save $2 billion in costs next year and $3
billion in 2008. A big part of the savings is a more aggressive move to cut
staff. Intel  said its employee population will drop from around 100,000 now, to about 95,000 by the end of this year, and to 92,000
by mid-2007.

The company didn’t give out a specific number of how many employees would
be laid off, but said the staffing drop would include layoffs, attrition and
“previously announced actions.” In July, Intel announced it would layoff
approximately 1,000 managers worldwide.

Most job reductions this year will occur in management, marketing and
information technology functions, Intel said. Intel has also sold
some businesses in the past few months, which will add to the cost

Analyst Gordon Haff said he didn’t think the streamlining would affect
Intel from a competitive standpoint and could even help its marketing

“It’s not to say Intel, or AMD for that matter, don’t need to do
marketing, but at the end of the day a lot of it comes down to how good your
chips are,” Haff, analyst with Illumintata, told

“In its day, the ‘Inside Inside’ program was very effective and
disadvantaged AMD, but I think a lot of times Intel has gone too far in
programs it thinks can influence end-user behavior.”

Haff also said Intel may have come to the realization that too many
marketing programs can confuse customers and actually be a barrier to
greater sales.

Starting next year, Intel said it expects reductions will be
more broadly based as the company looks to improve labor efficiency in
manufacturing, improve equipment utilization, eliminate organizational
redundancies, and improve product design methods and processes.

In addition, Intel expects to achieve a capital expenditure avoidance of
$1 billion by better utilizing manufacturing equipment and space. The
company expects that approximately 25 percent of the savings in 2007 will
reduce cost of sales, and the rest will reduce operating expenses.

Severance costs will total approximately $200 million, Intel said.

There was no further information on Intel’s business outlook as the
company noted it’s in a quiet period before its next earnings report.

Last year, Intel’s Silicon Valley neighbor Hewlett-Packard  made a larger size cut of about 14,500
which was the start of the company’s turnaround under new CEO
Mark Hurd.

“I think HP’s moves will go down as a good example of what you can
achieve by operational efficiency,” said Haff. “I’m sure Intel noticed.”

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