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Intel's post-PC plan to take a short-term hit

Posted: 21 Apr 2016 ?? ?Print Version ?Bookmark and Share

Keywords:job cuts? PC industry? chipmaker?

Intel Corp's aim to diversify and reinvent itself is proving to be an expensive proposition. The world's largest semiconductor company forecast a steeper decline than previously calculated for the PC market.

While Intel's dominance in cloud computing has been met with applause by analysts, they have expressed their skepticism in the company's optimism in its investments in ICs and the Internet of Things.

"40% of our revenues and 60% of our margins come from outside the PC, now it's time to push the company over all the way to that strategic direction," said chief executive Brian Krzanich in a conference call laying out plans to cut 12,000 employees at a cost of $1.2 billion.

The reorg tops 10,500 people his former boss, Paul Otellini, laid offin 2006 at the dawn of the mobile boom when the PC decline began in earnest. Microsoft, the company's Wintel partner in the PC boom, paid $1.6 billion to cut 18,000 people when its new CEO took charge last year.

The layoffs pale to the more than 50,000 their top customer, Hewlett-Packard, has laid off in recent years as it split and split again.

More recently the pain has spread throughout the maturing semiconductor industry, triggering a massive consolidation of giants such as Broadcom and Avago as well as 15% layoffs at Qualcomm amid slowing smartphone growth.

Intel will maintain its plan to spend $9.5 billion on capital equipment this year, mainly for 10nm processors and 3D NAND flash. Meanwhile, new division president Venkata "Murthy" Renduchintala is evaluating which Intel products will get the axe.

After a worse than expected first quarter, Intel predicted its second quarter will see revenue fall slightly to $13.5 billion. It drew down forecasts of 2016 revenue slightly to mid-single digit growth and raised its predictions for PC declines to high single digits.

"This may mark the beginning of the end for the PC erait was a good run," said Nathan Brookwood, principal of market watcher Insight64 (Saratoga, Calif.). "Intel was a second-tier chip maker in the 1980s when the PC came along and here we are with the PC beyond middle age," he said.

"Certainly the party is over for the PC, the market is still there but it's not much fun anymore," added Linley Gwennap, principal of The Linley Group (Mountain View, Calif.).

Wall Street praised Intel's move noting its stock is likely to take a short term hit.

"We applaud Intel for finally taking decisive actions to address its cost structure with an announcement of significant restructuring," Ross Seymore, analyst with Deutsche Bank wrote in a report that maintained a buy on Intel. "Looking forward, we expect a leaner Intel with great focus on growth businesses," he added.

Intel's latest quarter

Figure 1: Intel's latest quarter compared to its prior quarter (above) and to the same quarter last year (below). (Charts: Intel)

Intel's chart last year

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