Intel announces layoffs, reorganization

Together with previously announced layoffs of middle-management executives and the sale of two business units in recent months, the actions will reduce Intel's workforce by a total of 10,500 people by 2008 -- about 10 percent of the entire company.

The layoffs will happen in stages. Most job losses that take effect in 2006 have already been announced, including Intel's sale of its media and signaling business in August, the cut of 1,000 executives in July, and the sale of its XScale smartphone chip division in June. Those jobs include workers in management, marketing and IT.

Many more cuts will happen in 2007, when Intel chops jobs in manufacturing and product design, improves equipment use and eliminates other redundancies, the company said.

The total impact will leave Intel with 92,000 people by the middle of 2007, down from the 102,500 it reported in the second quarter of 2006. By cutting these jobs, the company will save US$2 billion in 2007, and $3 billion per year beginning in 2008, Intel said.

The cuts were a dramatic move for a company that holds a commanding 80 percent worldwide market share of PC chips and posted a profit of $885 million in the second quarter. Still, the company could have made more money, illustrated by Otellini's recent prediction that Intel would post profits of $9.3 billion for 2006, down from $12.1 billion in 2005.

The problem came from slowing growth in the PC market, a loss of share to rival Advanced Micro Devices Inc. (AMD), and Intel's move to preserve its market share by making deep price reductions on its chips. In response, Otellini told analysts in April he would "restructure, repurpose and resize" the company over the coming quarter.

Analysts cheered Otellini's move, saying Intel had become bloated. Otellini can use the new cuts to achieve four goals, said Ted Schadler, vice president for consumer electronics research at Forrester Research Inc.

He can eliminate redundant jobs, simplify operations by having fewer products, get out of businesses that don't match Intel's core strengths, and get out of businesses that aren't so profitable, Schadler said.

When Otellini succeeded former CEO Craig Barrett in May 2005, he found there was a huge competitor lurking on his left flank -- AMD -- and he saw a company that was no longer a lean machine, but had grown to fill every nook and cranny, Schadler said.

"So he eliminated middle management, getting rid of 1,000 executives. And now he's using that as a pry-bar into the organization to say 'Who do we really need?'" said Schadler.

"They need to react faster to changing markets. Power [efficiency] is a huge issue, but it took them two years to get a product out the door that was even arguably better. Their road map looks great now, but that's too long."

Since meeting with analysts in April, Otellini has also pushed new chips to market faster, resulting in a raft of new chips in recent months, including the "Woodcrest" Xeon 5100 chip for servers in June, "Conroe" Core 2 Duo chip for desktops in July and "Merom" Core 2 Duo chip for notebooks in August. Intel also reached for the high-end server market with the new "Tulsa" Xeon and "Montecito" Itanium chips.

And with an eye to the future, Intel accelerated the launch of its quad-core chips for desktops and servers, pledging to release them in the fourth quarter of 2006 instead of the first half of 2007.

Intel hopes this flood of new products will stop the erosion of its dominant market share. The company manufactured 77.9 percent of all CPUs sold in PCs around the world during the first quarter of 2006, according to Gartner. That number is down from 80.5 percent in the first quarter of 2005 and 81.5 percent in the first quarter of 2004.