Intel Employees Outside?

Intel doesn’t want to use the “L” word, but layoffs seem inevitable at the world’s largest chip maker.

In an internal email to Intel’s IT staff obtained by internetnews.com, company CIO John “JJ” Johnson, said the department “must rapidly adjust our programs and headcount to meet our new Plan of Record (POR) spending and headcount targets.”

Later in the memo, Johnson said:

“Our immediate first steps are to stop selected programs completely, scale back other programs, and remove unnecessary overhead across the organization. The identification of these programs will be completed in roughly 30 days.

“To create a more efficient IT, we must develop a more compact, less hierarchical organizational structure, reduce process and operational overhead, and selectively reduce jobs in some skill areas.”

In a briefing with financial analysts last week, Intel CEO Paul Otellini said that a thorough review of all operations at the company had begun with an eye towards cutting as much as $1 billion of the $12 billion in spending that had been planned for 2006. Still, Otellini said it would be “way too simplistic to do a reduction in force.”

Intel spokesman Chuck Mulloy told internetnews.com that no final decision on headcount reduction or redeployment in any department has been made yet.

“No one is saying across the board layoffs, this is more strategic than a short term cost-savings look at operations. Although he had not seen Johnson’s memo, Mulloy did say the intent was likely to set the stage in case significant staff redeployments prove necessary.

In an earnings call last month, Intel chief financial officer Andy Bryant said the forthcoming review of company operations would not have to lead to firings. He said to meet its financial goals, there would have to be “some kind of headcount reduction by attrition and conserving around the edges. It doesn’t require a layoff, but discipline around not hiring people.”

Otellini said the primary review of company operations will take place over the next 90 days. But he added two caveats: first that Intel will take immediate action ahead of the full review period where it sees non-performing segments of its business; second, changes may well continue at Intel beyond the review period into 2007.

Intel cited an overall slowdown in the PC market for its recent profit shortfall, but analysts note the company has also been hurt by its chief competitor, AMD . In the server area in particular, AMD’s share has grown to over 20 percent thanks to its Opteron processor.

“It’s not only the server side,” Richard Shim, senior research analyst with IDC, told internetnews.com. “Intel is under a bit more pressure than usual, as AMD catches on with consumers in retail in U.S. and emerging markets. AMD is clearly gearing up to be a bigger number two threat than they have been and that puts pressure on Intel because customers can get more leverage on prices.”