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September 2, 2006
It's going to be a long and nervous weekend for Intel's employees.
The Santa Clara chip giant is expected to announce layoffs Tuesday that could number in the thousands. Paul Otellini, chief executive of Intel, has scheduled a Webcast with employees for Tuesday afternoon to discuss the results of Intel's ongoing efficiency analysis.
"We hear that it is close to 10,000 layoffs," said Ashok Kumar, an analyst at Raymond James. "They may also say something about writing down excess inventory and dealing with unprofitable businesses. That is what Wall Street is expecting."
Otellini wants Intel to cut costs as part of an effort to become more competitive at a time when rival Advanced Micro Devices has been stealing market share in Intel's mainstay microprocessor business. Before sales started dipping earlier this year, Intel had been in a hiring binge, growing from 79,700 employees at the end of 2003 to 102,500.
Intel spokesman Chuck Mulloy declined to comment on the layoffs and whether Intel will make an announcement Tuesday. He said that Intel will tell its employees and the news media the results of its efficiency analysis by the end of September.
Intel has already announced it would cut 1,000 managers and it agreed to sell off several communications-related businesses, which will reduce payroll by another 2,000 by year's end. Kumar calculated that if Intel lays off 10,000 employees, that could save the company $1.5 billion in annual operating costs, or more than the amount targeted by Otellini.
"Otellini has been on a very strict path to bring the company to greater profitability and to streamline the company so it can be more focused on the mission," said Tim Bajarin, an analyst with Creative Strategies. "It wouldn't surprise me to see some layoffs."
But he added, "Mass layoffs aren't the tradition at Intel. They are more likely to be strategic in some way, related to a particular business."
Kumar expects that Intel may write off as much as $1 billion in existing inventory and delay spending on new factories scheduled to come on line in Israel and Arizona. He also wouldn't be surprised if Intel decides to scale back money-losing businesses such as flash memory chips. Mulloy declined to comment on those possible actions.
David Wu, an analyst at Global Crown Capital, also expects Intel to cut about 12,000 more employees.
"My guess is they will cut by functions rather than across the board," he said. "They probably have too many marketing people relative to sales people. I suspect that the engineering teams will not be touched."
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