Intel Cutting Jobs in Wake of Reduced Sales Expectations

After days of rumors, Intel CEO Brian Krzanich confirms in an internal memo that the company is laying off workers to shift resources to growth areas.

Intel Krzanich

Intel, hurt by the continued stagnation in the global PC market, reportedly is cutting hundreds of jobs at different sites around the world.

Rumors of the layoffs have circulated for more than a week, but in an internal memo to employees June 16 that was obtained and published by The Oregonian news site, Intel CEO Brian Krzanich confirmed the reports. Decrying leaks to the press regarding the job cuts, Krzanich admitted that some employees were being laid off and added that "with today's incredible pace of innovation and change, companies consistently need the flexibility to invest in skills and experience required in new growth areas."

He said the workforce reductions were based on several factors, including the need to lessen investment in areas of the business that are falling in importance, as well as redundancies and inefficiencies, and job performance. The CEO didn't specify how many jobs would be cut though he said it would be "generally no more than a few hundred employees in any given site or geography."

Krzanich also said that he expected Intel—which has more than 105,000 employees—would end 2015 with the same number it started the year.

The job cuts come after Intel chalked up record revenues in 2014 that were partly the result of a stronger worldwide PC market, which had seen significant declines in sales between 2011 and 2013 as more business and consumer dollars went to tablets. The declines eased in 2014, due in large part to Microsoft's decision to end support of Windows XP, forcing businesses to migrate to Windows 7 or 8.

However, slow PC sales in the first three months of this year forced Intel to reduce its revenue expectations for the year, from about a 5 percent increase to essentially flat. Intel executives, in a conference call in April to discuss first-quarter financial numbers, also said that they were planning to cut about $300 million from the $20 billion they had set aside for R&D and administrative costs.

First-quarter revenue hit $12.8 billion, which was flat from the same period last year. A key driver was the softening demand for PCs, and Intel's Client Computing Group still accounts for more than half the company's sales. Revenue for the client group was $7.4 billion, an 8 percent drop from the first quarter of 2014. Intel executives in April said they were confident that as the year rolls on, gains in the data center, Internet of things (IoT) and memory businesses will offset PC losses.

In his internal memo, Krzanich said he wanted to be as transparent as possible with employees regarding Intel's plans, but didn't want to make a company-wide announcement about the layoffs out of respect for those who are losing their jobs. He said the reports in the media made such an announcement necessary.

"For the vast majority of Intel employees, this has no impact," Krzanich wrote. "The most important people we need to communicate with are those affected by these actions. This is why apparent 'leaks' of internal documents disappoint me so deeply."

He also noted that Intel executives will "continue to look at our organization and make the changes necessary to fund our growth areas. This will include rigorous performance management, consistent with how we operate at Intel. … I don't plan to communicate broadly each time we employ these strategic actions. My commitment to you is that as we enter each year we'll give you the general direction on head count for the company, and if that direction changes materially, we will update everyone."