Intel Swings the Axe, Plans to Sell Off Divisions

The world’s top chipmaker Intel Corp. said Tuesday that it will shed 10,500 jobs (about 10 percent of its work force) and spin off “underperforming” business groups as part of a widespread restructuring meant to stave off shrinking profits and competition from upstart rival Advanced Micro Devices Inc.

About half those job cuts have already been made through management layoffs, the sale of two businesses and natural attrition, according to an Intel spokesperson. The company said this year’s remaining layoffs, projected to total 2,500, will come from management and the marketing and IT departments, while 3,000 more positions will be culled from manufacturing, design and other segments beginning in 2007. The surviving headcount will settle in around 92,000.

As for the question of the vendor’s plan to refocus on the most profitable and fastest-growing business units, Intel is keeping mum. Telltale clues suggest its WiMAX and Wi-Fi initiatives are safe, however. The vendor pledged to return to its roots as a PC chipmaking company earlier this year and accordingly sold off a big portion of its mobile communications chip business that makes chips for cell phones, and its media and signaling chip division. It then invested $600 million into a WiMAX service provider, Clearwire Corp., leading a $900-million round of funding. Over the summer it has issued strong statements of confidence in the WiMAX and Wi-Fi markets, along with the intention to add WiMAX support to its Centrino mobile broadband platform for laptops.

Other divisions could go on the chopping block: Analysts fingered the Itanium microprocessor business, the remnants of its Level One telecom and networking chip acquisition and the NOR flash memory business.

Severance costs from the announced layoffs will total $200 million, but the ongoing restructuring is projected to generate $2 billion in cost-savings and opex reduction next year, with the savings growing to around $3 billion annually after that. That’s in addition to Intel’s earlier announcement that it will achieve a capex avoidance of $1 billion by better using manufacturing equipment and space.

Nonetheless, Wall Street did not respond positively to the announcement, perhaps seeing the moves as too small. Analysts say Intel could be seen as bloated, focused on too many businesses with too many hands – and rumors had been flying prior to the announcement that Intel would lay off as many as 20,000 workers. On Wednesday, Intel declined 60 cents, or 3 percent, to $19.39 on the Nasdaq Stock Market, sending the entire index into a skid. The Nasdaq Composite Index fell 29.52 points, or 1.3 percent, to 2176.30.

Intel Corp. http www.intel.com

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