Technology

Intel to slash 12,000 jobs as it moves away from PCs

Intel

Intel is restructuring its operations to prioritize cloud computing and connected devices.

(Laura Rauch / Associated Press)

Giant chipmaker Intel Corp. will slash 12,000 jobs, or about 11% of its workforce, to help offset declining PC sales and reposition itself as a firm focused on cloud computing and smart devices, the company said Tuesday.

“We are evolving from a PC company to one that powers the cloud and billions of smart, connected computing devices,” Intel Chief Executive Brian Krzanich said in a statement.

The job cuts will last through the middle of 2017 and will involve consolidating offices worldwide and “a combination of voluntary and involuntary departures, and a re-evaluation of programs,” the company said.

Intel expects the cuts will save the company $750 million this year and $1.4 billion by mid-2017.

The company declined to say where those cuts would take place. Intel, which is headquartered in Santa Clara, Calif., has manufacturing facilities in Oregon and Arizona as well as China, Mexico, Israel and Ireland, said Betsy Van Hees, an analyst with Wedbush Securities.

“Unfortunately, a reduction in the workforce was long overdue,” Van Hees said. “It’s a pivotal time for the company, and it’s critical that they align the organization to support the new business model.”

The news was announced as Intel posted first-quarter earnings that came in below Wall Street estimates.

The company reported earnings of 42 cents per share and $13.7 billion in revenue, below the 48 cents per share and $13.8 billion in revenue estimated by analysts, according to Thomson Reuters.

Company shares closed at $31.60 apiece Tuesday, largely unchanged from a day earlier.

Intel is under pressure to restructure its business, which still relies on PCs for about two-thirds of its revenues. PC sales have experienced steady declines, with shipments falling 10% in the first quarter of 2016 compared with a year ago, according to Gartner.
 

Intel has been growing its cloud-computing business -- remote servers that customers can access from anywhere -- which commands higher profit margins than PC chips, said Angelo Zino, an analyst at S&P Global Market Intelligence.

“They’ve done an excellent job over the last several years moving the needle away from PCs,” Zino said. “We expect that to continue. In the immediate term, look for more aggressive moves on the cost-cutting side of things.”

As part of its push to bolster its cloud-computing services, Intel purchased chipmaker Altera last year for $16.7 billion.

Zino said Intel dominates the market for microprocessors, which are used to power servers. However, the company could face growing competition from companies such as Qualcomm, which makes cheaper and less-powerful chips for cloud computing.

Intel is rumored to be in the running to supply Apple Inc. with chips for the iPhone 7 -- a potential major victory for a company that has been criticized for not being aggressive enough in the smartphone market.

News of the job cuts come weeks after Intel announced the departure of two veteran executives: Kirk Skaugen, senior vice president of the Client Computing Group and Doug Davis, general manager of the company’s Internet of Things unit.

Andy Grove, who served as Intel’s president, chief executive and chairman of the board, died March 21. He famously led the company through another major transition, persuading Intel to build microprocessors instead of memory chips, setting the stage for Intel’s success for decades.

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