Intel to lay off 12,000 staff as PC downturn continues
20 April 2016
Intel, the world's largest maker of semiconductors, said on Tuesday that it was laying off 12,000 people, about 11 per cent of its work force, as it continues to reel from a long downturn in global demand for personal computers.
The company's chief executive, Brian Krzanich, announced the layoffs as part of a larger corporate restructuring, which will result in a $1.2 billion charge. Intel also reported lower-than-expected first-quarter earnings and reduced its projected revenue for the year.
''Intel has been known as the PC company,'' Krzanich said in an earnings call with Wall Street analysts. ''It's time to make this transition and push the company all the way over'' to supplying chips for things like smartphones, cloud computing, sensors and other devices.
Intel's restructuring is the latest evidence of how one-time tech bellwethers have had to navigate a rapid shift into the more flexible and dispersed tech world created by the combination of mobile computing devices connected to cloud computing systems. On Monday, for example, IBM reported lower profit and revenue, including a 22 per cent drop in sales of computing hardware.
Microsoft, which will report its financial results on Thursday, has over the last several years changed its strategy from software in PCs toward computer servers, a mix that involves much more software rented over its giant cloud system. Dell, a big PC maker, took itself private in 2013. Hewlett-Packard divided into two companies last year, one focused on corporate computing and one that makes PCs and printers. Last September, HP announced about 30,000 layoffs.
At Intel, Krzanich became chief almost three years ago, and over much of that time he has talked about moving the company into new areas.
More recently, top executives have left the company, and Krzanich has brought in executives from other companies. The new restructuring is intended to help Intel invest more heavily in its new segments, such as chips to power connected devices.
Yet Intel still gets 60 per cent of its revenue from chips supplied to PCs, and its profit margins there are not as good as in data centre chips, its other major business. The company's other businesses have small profits, or else lose money.
That means PCs are still core to what Intel does. Most of the layoffs, along with things like consolidating facilities and cut projects, are expected to be inside the PC business.
Employees who are affected by the restructuring will be notified in the next 60 days, the company said. The layoffs are the largest since 2006, when the company let go 10,500 employees.
Last week, Gartner reported that worldwide PC shipments in the first quarter were 64.8 million units, down 9.6 per cent from a year ago.
''The hope was that PC demand, which has fallen for years, would be flat, and other segments would start filling in,'' said Mark Hung, an analyst with Gartner. ''This threw a monkey wrench into that.''
For the first quarter, Intel had net income of $2 billion, or 42 cents a share, and revenue of $13.7 billion. Wall Street analysts had projected that Intel would earn 47 cents a share on revenue of $13.8 billion, according to a survey by Thomson Reuters.
Revenue at the PC group fell 14 per cent from the previous quarter, indicating Intel had to cut prices as demand fell.
Intel faces other potential stumbling blocks. The company is unique as much of the tech industry counts on it continually delivering chips with more transistors for the same money. The process, known as Moore's Law after Intel co-founder Gordon Moore, has generally happened in two-year intervals. The next generation of chips, however, is likely to arrive in two and a half years, or more, leading to fears that Moore's Law is slowing.
Krzanich, who previously had played down the significance of his production schedule, took pains on Tuesday to say that Intel wanted to pick up its pace. ''We are continuously striving to get back to two years,'' he said.
Besides cutting its operating expenses by $700 million this year through the restructuring, Intel may be seeking to sell different types of chips in combined ways for better efficiency and profit.
''We're moving from a company that was at the center of the PC market to being a company at the centre of cloud computing,'' said Stacy Smith, Intel's chief financial officer.
On Tuesday, Smith was named to run Intel's sales, manufacturing and operations, another indication of how Intel needs to tighten its relationship with a few big cloud companies, like Amazon and Microsoft.
This would involve integrating the production and sale of things like chips for computer memory along with computer processors. The company also wants to build a business in connecting things like automobiles to cloud computing, and needs to build faster wireless computing technologies for that. Intel added that it would begin a search for a new chief financial officer.