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Intel to Cut 10,500 Jobs by Mid-2007

The chip maker aims to meet competition by shrinking its workforce by more than 10%.

September 06, 2006|Chris Gaither | Times Staff Writer

SAN FRANCISCO — Intel Corp. said Tuesday that it would cut 10,500 jobs -- more than 10% of its workforce -- by the middle of next year as the Silicon Valley heavyweight slims down to fight smaller, nimbler rivals.

The cuts accelerate the company's most significant restructuring in two decades and are intended to refocus Intel on its primary business of making computer chips. As Intel diversified in recent years, it saw its core market eroded by rivals such as Advanced Micro Devices Inc.

Intel Chief Executive Paul Otellini said the company expected to reduce operating costs by $2 billion in 2007 and $3 billion in 2008. Despite the job reductions -- aimed primarily at management, marketing and information technology positions -- Intel will have about 12,000 more workers than it did at the end of 2003, when the company rapidly ramped up hiring.

"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," Otellini said in a statement. Intel executives declined to comment further on the restructuring or to forecast how the changes might affect third-quarter earnings.

Company spokesman Chuck Mulloy said it was unclear how many workers in California would lose their jobs. About 14,000, or 13%, of Intel's employees are based in the state.

With the restructuring, analysts said, the Santa Clara, Calif., company made its biggest concession yet that the well-known "Intel Inside" marketing slogan could take it only so far in fending off competition. Significantly, Intel made no mention of cuts in research and development -- a sign that analysts interpreted as reinforcing the company's commitment to regaining technical dominance.

Although AMD has made significant inroads and won fans for its innovation, Intel chips still power about 80% of the world's personal computers. Intel's share of chips in new PCs has fallen to about 73%, according to Mercury Research.

"What we're seeing is one of the leaders in the industry taking a closer look at making sure its efforts are focused on delivering the most value and innovation," said Nucleus Research analyst Rebecca Wettemann. "This is probably a natural correction at this point."

Intel shares gained 11 cents to $19.99 before the company announced the widely anticipated cuts. They fell 26 cents in after-hours trading following the news. Some analysts had predicted that Intel might cut as many as 20,000 positions to further trim what they considered an oversize staff.

Beginning in 2004, the company hired furiously and grew by nearly 30% as it anticipated a rebound from the dot-com bust and tried to broaden its focus.

But sales and profit have slumped this year. AMD stepped up a price war and continued to raid Intel's core markets: PC chips and server chips. In July, Intel reported its sharpest quarterly profit drop in more than four years.

"Intel has too many poorly focused science projects for a company with so many competitive problems," Merrill Lynch & Co. analyst Joe Osha wrote in a research report Tuesday.

Long a semiconductor specialist, Intel has tried to reshape itself as a developer of "platforms," or packages of chips and related technology aimed at particular customers -- including Centrino for wireless computing and Viiv for home multimedia.

In April, Intel announced a top-to-bottom study of the company's structure. It has since said it would sell its communications business to Marvell Technology Group and its media and signaling business to Eicon Networks Corp. of Canada.

Intel plans to reduce its head count by 7,500 this year and 3,000 in 2007. Mulloy, the Intel spokesman, said 5,000 of those jobs had already been cut or were about to be: 2,000 employees have retired or otherwise left voluntarily since July 1; 2,000 more were in the business units being sold to Marvell and Eicon, and 1,000 were let go as part of a recently announced cut of managers.

Mulloy said the remaining cuts would be spread across various geographic regions.

After being an also-ran for years, AMD sneaked up on its bigger rival by releasing semiconductors that were faster and cheaper than Intel's. A recent slew of new computer chips have helped Intel regain its edge in performance, said investment manager Graham Tanaka, but AMD is still able to use lower costs to its advantage.

"Intel has basically allowed AMD to not only get into the tent but take a reasonably strong position in the marketplace," said Tanaka, who runs Tanaka Capital Management and owns Intel shares. "Intel is becoming leaner and meaner, and better able to compete."

Intel's competitive situation reminded Global Crown Capital semiconductor analyst David Wu of Hewlett-Packard Co.'s recent revamping under CEO Mark Hurd. An old-line Silicon Valley company like Intel, HP was broadsided by a faster, nimbler competitor: Dell Inc.

"Basically they've got a welterweight that's challenging them," Wu said, referring to Intel. "They lose some weight, go back to the ring and fight again."


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