Ahead of today’s Q1 2016 earnings release and call, Intel has announced that they are going to be cutting a significant number of jobs over the next year. The job cuts come as part of Intel’s larger and ongoing restructuring efforts, as the company grapples with an overall soft PC market and continued struggle to carve out a larger piece of the mobile market. Ultimately Intel’s looking to invest in what they consider to be high-growth areas, which means laying off employees in stagnant business units while making other investments in those areas that are seeing continued growth.

The job cuts themselves are expected to involve up to 12,000 employees, or about 11% of the company’s workforce. Intel will be eliminating positions through a combination of both voluntary and involuntary layoffs, and in the process will be consolidating the remaining workforce and their respective sites. Intel expects the bulk of the layoffs to occur within the next 60 days, with the entire process stretching into mid-2017.

The company’s pre-earnings announcement does not state where these layoffs will come from, and we’re expecting at least some additional detail to come out of the company’s earnings call which is still on-going. However the company is reiterating what markets and businesses they see as growth opportunities and will be investing into for the future, which offers some basic guidance on what the company sees as their most important businesses. Intel’s Data Center and Internet of Things businesses are specifically being cited as their stand-out businesses, which combined with memory and FPGAs provided 40% of the company’s revenue and a majority of their operating profit. Meanwhile in the consumer/client market Intel has seen good returns on 2-in-1s, gaming and home gateways. Conversely, the overall (client) PC market is still in decline, and I expect that a number of the cuts will be centered on that.

Finally, Intel has also detailed the costs of their restructuring. The company will incur a one-time charge of $1.2 billion in Q2, with this presumably being a significant number of severance payments. In turn, the company expects to save $750 million this year, with an annual run rate savings of $1.4 billion per year after the last of the layoffs are completed in mid-2017.

We’ll update this article later today with more information once it comes out of Intel’s earnings call. Ultimately the soft PC market has been a continuing trend for Intel over the past few years, so that we’re seeing Intel react to it now is not unexpected. However it will be important to see just how the layoffs are organized – for example, if Intel makes much in the way of cuts in the fab business – as Intel is a large company. What this means for future client PC investments, mobile, could prove to be significant.

Update: Intel's earnings call has shed a bit more light on the restructuring, but Intel is not spelling out exactly where the bulk of the cuts are coming from at this time.

Overall Intel did reiterate that although the client business has been weak, the company's restructuring plans will be touching more than the client business. The impact to the client business then is that it is being refocused via the restructuring, hence the earlier comments on what Intel sees as the client growth markets. Undoubtedly aspects of the client business are in the crosshairs given the continued slowness in the market, but Intel isn't saying too much more than that.

The company has also made it clear that they're not backing off on fab/manufacturing investments in the near future. Capital expenditures on 10nm and 3D NAND continue untouched even with the restructuring, and overall Intel's technology cadence plans have not changed. Farther ahead, the company has indicated that they are being mindful of their capable competition, and that they need to stay ahead of them, including getting back to a two-year cycle if at all possible.

Finally, Intel has offered a bit more information on the timeline for the restructuring itself. While the majority of the notices to employees will go out in 60 days, the projection is that only about half of the layoffs will be completed by the end of this year, which implies the rest will happen in H1 2017. Part of this comes down to the fact that while Intel has a target number for employment, they have not decided whether they will end any product lines entirely. Intel is in the process of undergoing a complete review of the business to identify any products the company may want to cease, and Brian Krzanich has said that when the review is done there's likely to be a few products that get flagged.

Source: Intel

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  • willis936 - Wednesday, April 20, 2016 - link

    Yeah experience is important and if you don't invest in having newer generations getting experience then you'll be screwed when your old guys retire. Reply
  • SirMaster - Wednesday, April 20, 2016 - link

    Really? I work for a small ~120 employee manufacturing company and even I get the option for paid paternity leave. Reply
  • Murloc - Wednesday, April 20, 2016 - link

    that's standard operating procedure when it comes to engineers. They start costing too much after 50. Reply
  • SirMaster - Wednesday, April 20, 2016 - link

    As an engineer, good thing that I am planning my savings and investments around retiring at about 50 then. Reply
  • Ananke - Wednesday, April 20, 2016 - link

    Agree. I'm in finance. Perks and salaries are high to retain engineering talent - when it is needed, but they quickly become a burden upon non revenue growth. Q1 revenues were not good in any businesses, Q2 and second half estimates are kinda gloomy, so new capital and R&D expenditures are not going to realize, hence the most expensive are to go. Accountants are 1) not that expensive 2) like a fixed expense - you have 5 accountants with 200 or 500 engineers and technicians 3) majority of them are temp and contracts anyway.
    When a company has 1.4 bln of pretax related charge, that in Silicon Valley means tech staff laid off , entire division shut down i.e. people on full time employment with benefits and large 401K plans.
    Reply
  • name99 - Tuesday, April 19, 2016 - link

    This sounds as clueless as Microsoft's version of the same thing a year ago --- a dinosaur flailing around without a real clue.
    Intel's main business is CPUs, right? So where do they ACTUALLY plan to cut back?
    Xeons? God no, that's where the money is.
    Core-m? That's where the other money is.
    mobile i3, i5, i7? Not if they care about 2-in-1s.
    Atom and Quark? I'd get rid of them, but apparently Intel still has fantasies that they can make money with the IoT.
    Their various software groups? icc, openMP, the Linux group, numerics, Cilk and other parallel initiatives are probably cheap and pay their way strategically.
    LTE? Not if they have those grand IoT plans.
    etc etc

    I'm mocking them because I have a low tolerance for BS. You don't claim "Our results demonstrate a strategy that’s working and a solid foundation for growth" at the same time that you are LAYING OFF 11% of your workers. You don't claim "this requires some difficult decisions" and then refuse to actually give a single decision as to which groups are going to be affected.

    The one group I can think of that they might reasonably toss is SSDs. They have no particular advantage in this space, and the battle has been won --- you don't need to convince anyone now to buy SSDs.
    3D-XPoint might POSSIBLY be the same --- I expect Intel had grand dreams of using it as a strategic advantage to force the purchase of Xeons, during whatever window exists while 3D-XPoint is the only viable RAM-bus attached NVMe, but now that it's become clear how large a job integration this sort of persistent memory is (mainly because of the OS work involved), they may be wondering if no OS's will be ready until after alternatives to 3D-XPoint exist, like the various MRAM solutions or alternative ReRAM solutions. This outcome would severely limit 3D-XPoint's strategic value, so once again, why is Intel doing the job that other vendors can do just as well, a job that will be driven by standards and commoditization?

    The last possible candidate is Xeon Phi. My guess is that no way has this paid for itself and there's no explosive growth path ahead of it. BUT I suspect Intel management also fear that it's a strategic requirement. If they want various future supercomputer contracts, they need something like Xeon Phi (ie a throughput engine), and they don't want the humiliation of using nV cards in an Intel supercomputer. And THAT is how great empires destroy themselves --- through emotional concerns over "humiliation" rather than rational thought. (God knows, this is the story of 90% of the stupid things the US has done since at least getting involved in Vietnam.)

    Meanwhile, kids what's happening to the competition? Oh, TSMC, fresh from telling us that they've been in 10nm "risk" production for some months now (probably too soon for A10, but likely ready for A11 in 2017) said to shareholders today that they're starting 7nm risk production in 2H2017, with mass production hopefully by 2018. (So MAYBE soon enough to hit A12s...) Let the weeping and wailing begin about how TSMC sux because their nanometers aren't the same as Intel nanometers, how Intel fabs are superior because reasons, etc etc...
    Reply
  • beginner99 - Wednesday, April 20, 2016 - link

    Have you ever worked in a large corporation? If yes you should know that laying off 10% could actually make the company perform better (more efficient) if it's the correct 10% of people laid off like bureaucrats, HR or other "employee controlling positions". Reply
  • hero4hire - Wednesday, April 20, 2016 - link

    Except those " controlling positions " never go away. A large Corp is political and layoffs are the most political action. They clear cut divisions and the best go with the worst. If you're connected, you transfer out and see it coming. It is a fantasy that a company would perform better. It may become more efficient by having people work 2 or 3 roles for a time. Layoffs are not merit based they are cost based. If you wanted to increase performance you'd fire the low performers. Reply
  • Kutark - Thursday, April 21, 2016 - link

    You're seriously going to try to suggest that no major corporation has had layoffs and not had growth afterwards? Obviously it's not a guarantee, but it does happen, and frequently. Sometimes companies get bloated over time and hire way more people then they need, or venture into markets they're not successful in, and eliminating divisions that are costing them money, or employees that may not be strictly necessary can absolutely produce growth and profit.

    Too many business owners and operators don't understand basic economics/business. One of my favorite things was how much people hammered Carly Fiorina (not that I was a huge fan, but I give credit where it'd due) by trying to say how "badly" HP was doing under her reign. What they don't realize is she took a company that was hemorrhaging 800mil/yr and brought that to only hemorrhaging 400mil/yr. That's a GOOD thing. Could it have been better? Certainly.
    Reply
  • Michael Bay - Wednesday, April 20, 2016 - link

    >TSMC
    >telling us
    Reply

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