Image: Intel headquarters
Don Ryan  /  AP
Intel Corp. said Tuesday a total of 10,500 jobs will be eliminated over the next year through layoffs, attrition and the sale of underperforming business groups as part of a massive restructuring.
updated 9/6/2006 10:09:39 AM ET 2006-09-06T14:09:39

Intel Corp., the world’s largest chip maker, has endured a humiliating stumble in recent years as it steadily lost market share in its core business to a feisty smaller rival.

But the semiconductor company’s announcement of sweeping job cuts Tuesday is its most ambitious maneuver yet to reverse criticism that it has become too bloated and burdened by bad technological bets to regain its footing.

Intel said after the market closed that it will eliminate 10,500 jobs — about 10 percent of its work force — through layoffs, attrition and the sale of underperforming business groups as part of a massive restructuring.

The company is fighting to reverse sinking profit and fend off rival Advanced Micro Devices Inc., which has stolen about 5 percent of Intel’s market share over the past year with a raft of cheaper and higher-performing products.

“The head count reductions are an admission that they aren’t going to gain the share back,” said Eric Ross, an analyst with ThinkEquity Partners. “Intel is finally recognizing the reality that AMD is gaining share, and it’s a bad PC market, so Intel really needs to lean down and make the best of what they have and become more competitive.”

Santa Clara-based Intel said most of the job cuts this year will come from its management, marketing and information technology ranks, and will expand in 2007 to include manufacturing, design and other segments.

The cuts are expected to save the company $3 billion per year by 2008. Severance costs are expected to total $200 million.

“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,” Chief Executive Paul Otellini said in a statement.

About 5,000 of the affected positions have already been cut or will be eliminated this year through a previously announced management layoff, the pending sale of two businesses, and attrition, said Intel spokesman Chuck Mulloy.

The company plans to cut about 2,500 more jobs by the end of the year. The remainder will be shed in 2007, when Intel’s head count will settle around 92,000, Mulloy said.

Before the announcement, shares of Intel rose 11 cents to close at $19.99 Tuesday on the Nasdaq Stock Market. In after-hours trading, shares fell 26 cents to $19.73.

Many analysts and investors were expecting higher job cuts and a better-defined strategy for dealing with problem business units, said Nathan Brookwood, analyst with research firm Insight 64.

“This is not nearly as deep or as broad a cut as many had anticipated,” he said. “They aren’t talking about cutting back any substantial programs. They’re saying, ’We can still do everything we were planning to do, but now we can do it with fewer people.’ And I’m not certain that’s a workable plan.”

Intel has been under intense pressure to unload money-losing divisions and halt the encroachment of AMD on its lucrative core business making the microprocessors that act as the brains of computers.

Intel has been steadily losing profits and market share. Analysts have criticized it for reacting too slowly after AMD’s 2003 launch of the critically acclaimed Opteron and Athlon 64 chips for servers and desktop PCs.

Speculation about massive job cuts has been rampant since Otellini announced in April the company was planning a broad overhaul targeting money-losing business groups in every aspect of its operations.

Intel, which had about 103,000 employees worldwide at the time, vowed to cut $1 billion in spending. It also launched the review of its business units.

The latest cuts come after three months of streamlining.

In June, the company said it planned to shed 1,400 jobs by selling a money-losing division that makes chips for cell phones and other handheld devices to Marvell Technology Group Ltd., which said it would absorb most of the workers in the $600 million deal.

The next month, Intel slashed 1,000 management jobs to reduce layers between top executives and supervisors. Five top executives were also reassigned to new positions, which the company said would simplify management and reduce the number of senior managers reporting to Otellini by two.

And earlier this month, Intel said it was selling its media and signaling business, which makes telecommunications motherboards and software. About 600 employees were expected to be acquired by the buyer, Eicon Networks Corp., which bought the business for an undisclosed sum.

Otellini said the current restructuring will be as expansive as the company’s transformation in the mid-1980s, when it exited a business it helped create — making dynamic random access memory chips widely used to store information in computers — to focus on microprocessors.

That shift prompted one of Intel’s largest rounds of layoffs ever, with the company eliminating more than 7,000 jobs, about 30 percent of its work force at the time.

Since then, Intel has avoided large-scale layoffs. But the dot-com crash did prompt the elimination of about 11,000 jobs — largely through attrition and buyouts — in less than two years.

Eric Ross, analyst with ThinkEquity Partners, said the estimated $3 billion savings from the cuts was higher than expected, and could help the company reverse its fortunes.

“They’re going to lose a lot of share, the PC environment is tough, and they’re bloated,” he said. “But if they can cut costs enough, we’re going to see a different company.”

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