Intel Cuts Jobs, Dell Cuts Rebates as PC Price War Looms
Intel Corp. cut jobs and Dell Inc. cut rebates Thursday as the biggest chip maker and the biggest computer maker girded for a new round of PC price wars.
Intel said it would lay off about 1,000 managers in what was widely expected to be the first wave of staff reductions in a broader restructuring at the Santa Clara, Calif., chip giant.
Dell said it would simplify its pricing structure and significantly reduce the number of special discounts and rebates.
Both moves reflect the increased competition Intel and Dell face from rivals -- notably Advanced Micro Devices Inc. and Hewlett-Packard Co. -- that have snatched market share.
Analysts said the changes at Intel and Dell boded well for PC shoppers, particularly as machines debut to handle Microsoft Corp.’s new version of the Windows operating system, called Vista.
“We are expecting a price war between Intel and AMD to begin at the end of this month, initiated by Intel. Simultaneously we are about to see a price war between Dell and HP, initiated by Dell,” said Michael Cohen, research director for Pacific American Securities. “If you’re going to see chip prices coming down and computer prices coming down, it could be a great time to buy a Vista-capable system.”
Intel shares, which have lost about half their value since January 2004, fell 16 cents to $17.72. Dell shares, which were above $40 in June 2005, dropped 68 cents to $21.70. HP fell 45 cents to $31.22 and AMD lost 71 cents to $22.13.
Analysts expect that Thursday’s layoffs at Intel precede deeper cuts prompted by a 90-day review ordered in April by Intel Chief Executive Paul Otellini, who wanted to identify inefficiencies and areas to save money.
“This is one of the first actions of the structural and efficiency program,” spokesman Chuck Mulloy said. “This action is designed to both reduce costs and improve decision-making and communications across the company.”
Another was to sell off Intel’s memory chip business to Marvell Technology Group Ltd., leaving Intel with about 100,000 employees.
Job cuts ultimately could number 10,000 to 15,000, American Technology Research analyst Doug Freedman wrote in a report before Intel’s announcement. Only managers were affected by the cuts announced Thursday. Intel will provide details about which divisions or regions lost managers in the coming weeks, Mulloy said.
“Intel previously suggested they would target areas of cost savings as it identifies them, and that leads me to believe that today’s news is likely only the tip of the iceberg,” said Cohen, who owns AMD shares.
Dell said it would sharply reduce the array of discounts and rebates on its consumer and small-business PCs to make the buying process simpler while keeping prices low. Round Rock, Texas-based Dell said dropping most of them will make its prices more clear.
“Certainly Dell is laying the groundwork for lower prices,” said James Ragan, an analyst with Crowell & Weedon in Los Angeles who owns Intel and Dell shares. “They’re going to take away some of the confusion so it will be more clear their prices are low.”
Dell is doing away with the promotions because customers complained of confusion, said Ro Parra, Dell’s senior vice president of the Home and Small Business Group.
In some quarters there have been as many as 50 promotions on a particular item, in the form of discounts, mail-in rebates, upgrades or items thrown in for free. Parra said the changes would mean that customers buying computers and other products on any particular day wouldn’t have to wonder whether they would have gotten a better deal if they had made their purchase a day earlier or later.
“This will be a plus for customer satisfaction, in our view,” said Cindy Shaw, an analyst with Moors & Cabot in San Francisco. “Rebate frustrations and teaser pricing of bare-bones systems have been a material source of customer dissatisfaction.”
Gateway Inc., the country’s third-largest PC brand, eliminated mail-in rebates in March and greatly simplified its own promotions in June, said Bart Brown, the Irvine company’s senior vice president for direct sales.
He downplayed Dell’s announcement, saying when Gateway ended rebates, “We didn’t feel it was newsworthy, just that it was the right thing to do.”
