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10,500 heads will roll as Intel implements cost-cutting measures

Posted: 07 Sep 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Intel? dual-core? Conroe? Merom? processor?

Intel Corp. announced early this week cost-cutting measures it will soon implement, including plans to cut 10,500 jobs through layoffs and attrition.

The company said it expects to achieve a "capital expenditure avoidance" savings of $1 billion through more efficient utilization of manufacturing equipment and space. This is the third time Intel has cut its capital spending.

Although Intel did not elaborate on capital expenditure cuts, the company said it expects to generate savings in costs and operating expenses of approximately $2 billion in 2007. In 2008 the company expects savings from this restructuring to grow to approximately $3 billion annually.

The savings are a combination of non-workforce related steps and a significant reduction in Intel's workforce. The company's headcount is projected to decline to approximately 95,000 by the end of this year, resulting from workforce reductions, attrition and previously announced actions, according to Intel.

Its workforce will decline to approximately 92,000 by the middle of 200710,500 fewer than the company's employee population at the end of the second quarter of 2006. In addition to the savings from the workforce reduction, the company expects savings in merchandising expenses capital and materials.

In 2007, the reductions will be more broadly based as Intel improves labor efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and improves product design methods and processes. The company expects that approximately 25 percent of the project's savings in 2007 will reduce cost of sales, and the rest will reduce operating expenses.

In 2008, the company expects the cost and operating expense savings to grow to approximately $3 billion as it achieves the full-year run rate on the projects implemented in 2007. The company also said severance costs would total approximately $200 million, offsetting some of the expected savings from the cuts.

"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," said Paul Otellini, Intel president and chief executive, in a statement.

Other Intel rumors were circulating over the weekend. As part of its major cost-cutting efforts, Intel could delay a pair of new 300mm fab projects in Europe and the United States, according to reports.

Hit hard by the PC slowdown and stiff competition, Intel in April said it planned to restructure the company. CEO Otellini told analysts he planned an overhaul that would affect "every part" of the company. In doing so, Intel has begun to shed unprofitable operations. The recent sale of Intel's XScale business to Marvell Technology reduced Intel's workforce by 1,400, he said.

Last month, media processing hardware/software vendor Eicon Networks Corp. agreed to buy the assets of Intel's media and signaling business for an undisclosed amount. Intel said unit employed approximately 600 workers.

The problem for Intel is clear, observers saidit has failed to expand beyond its x86-based microprocessor business, and even its core processor is under pressure from rival Advanced Micro Devices Inc. (AMD).

Recently, Intel has expanded its efforts in the server market. For some time, the chip giant has been losing market share to AMD.

To reverse its fortunes, Intel recently rolled out its new Woodcrest processor line, based on the Core 2 Duo architecture. The Woodcrest processors are apparently for dual-processor servers, while the Tulsa chips are for high-end systems. Last month, it introduced 10 microprocessors, including its next-generation chip, codenamed Conroe, and Merom chips for desktops and notebooks, respectively.

- Mark LaPedus
EE Times




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