Employees of Intel Canada Ltd. have been aware for months of the restructuring that will eventually reduce the giant chip maker’s workforce by as much as 10 per cent, but it is not yet known how the layoffs will affect the company’s Canadian branch.
Continuing his quest to stop a slide in profits, Intel Corp. Chief Executive Paul Otellini announced layoffs of about 7,500 more people Tuesday. 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 effects of the job cuts on the firm’s Canadian workforce is still uncertain.
“These are just the broad strokes. We don’t have any local details,” according to Doug Cooper, country manager at Intel Canada Ltd.
“The effect of the cuts remains to be seen. We will probably find out within the next few months,” said Dave Allen, North America district sales manager at Intel Canada.
The cuts 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.
“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,” the statement quoted Paul Otellini, Intel president and chief executive officer as saying.
The statement further said “Intel is currently in its quiet period” and that an update to its business outlook will not be made until the release of its quarterly earnings report on October 17.
Allen said Intel Canada employees were made aware of the company’s restructuring efforts as months before Tuesday’s announcements but “no specific actions” were relayed at that time. “Starting in May, we received updates about ongoing efficiency analysis. Yesterday’s announcement was just the next step.”
“No specific actions were relayed then and it is too early to conjecture how the restructuring will affect Intel Canada,” he 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 massive restructuring is seen by analysts part of a move to wrestle back market share from smaller rival Advanced Micro Devices Inc. (AMD).
Despite this, shares of the world’s largest microchip maker fell 25 cents, or 1.3 per cent, to $19.74 in extended trading on Tuesday following the announcement that Intel was shedding 10 per cent of its workforce. The company’s shares have fallen about 20 per cent in the year to date, against a 19 per cent drop in AMD shares.
AMD closed up by 6.3 percent at US$26.22 on the New York Stock Exchange.
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.
A Toronto-based technology analyst says the move is in keeping with a strategy, Intel adopted earlier this year.
“This is part of their cost cutting measures that has seen Intel gradually abandon non-core areas as well,” said Kevin Restivo, analyst for the SeaBoard Group Inc.
Restivo noted that the company has been selling its different businesses that are outside its microprocessor activities because of a slower growth rate that has characterized the Intel’s business.
Recent advances by Intel’s competitors, has put chip maker on the defensive. “In North America, Intel has been trying to focus on laptops and other mobile devices, but AMD has taken shares away from it in the microprocessor arena.”
AMD, which is about one sixth the size of Intel, also snagged orders from International Business Machines Corp. (IBM) , Hewlett-Packard Co. (HP) and Sun Microsystems Inc.
Apart from losing a sizable portion of the server market to AMD, Intel was also faced with a slump in the growth rate of PC sales this year and was forced to implement deep price reductions on its chips to preserve market share.
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.
