Intels Otellini Links Layoffs to Turnaround Plan

The chip maker's CEO tells employees in a memo that recent layoffs should make the company more competitive-and more cuts could be in store.

Intel says its plan to lay off 1,000 managers worldwide is a bet on its future.

The company began informing those managers affected by the job cuts—which could be the first such action resulting from a broad-based internal review of its business—on the morning of July 13.

Intel, which has been under pressure from rival Advanced Micro Devices of late, intends for the cuts to remove extra management layers and thus improve its internal communications and decision-making capabilities, making it more competitive, Intel CEO Paul Otellini said in a memo to company staff, obtained by eWEEK.

/zimages/4/28571.gifClick here to read the full text of Otellinis memo.

"This step is important because it addresses a key problem weve found in our efficiency analysis—slow and ineffective decision-making, resulting, in part, from too many management layers," Otellini wrote in the memo. Ultimately, he said, "We have too many management layers, top to bottom, to be effective."

Otellini indicated that the current set of layoffs may not spell the end of job reductions or other restructuring actions.

"We are in the process of fundamentally changing our behaviors and our structure for where our business and industry are going. You should expect that we will continue to take actions, including selective reductions, as we complete analyses and decisions about investments, expense levels and organizational structures," he wrote.

Indeed, the chip maker could reduce its overall employee roster of about 100,000 by as many as 10,000 to 15,000 workers, according to a July 13 report published by analyst Doug Freedman, of American Technology Research, in San Francisco.

"We believe investors are looking for work force reductions in the range of 10,000 to 15,000, as [Intel] streamlines research and development with a PC-centric focus," Freedman wrote in his report.

An Intel spokesperson confirmed the plan to lay off 1,000 managers, but declined to comment on the Freedman report.

Intels internal review—which Otellini pledged would leave no stone unturned—is designed to make changes that will help it become a more agile and competitive player in the PC market in the future.

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The memo suggests that Otellini believes that competition between Intel and rival AMD will intensify. Otellini has also warned of slowing PC market growth in coming years, a condition that will make it tougher for the chip maker to increase sales as well.

"Competition will intensify across our product lines. Pricing will be aggressive. We should not only accept that reality, but recognize that it reflects the position we have earned in the industry and the strength of our strategic direction," he wrote in the memo.

"Weak companies pursuing low-growth markets do not attract competition. Strong companies that have commanding positions and generate strong earnings growth are the ones that attract competition."

The companys internal review, announced on April 27 following a lackluster first-quarter financial performance by Intel, has already inspired several additional changes by the chip maker.

For one, Intel entered an agreement to sell its XScale application processor line to Marvell Technology Group for $600 million. That agreement, announced on June 27, will involve the transfer of most of the 1,400 employees who work on the product to Marvell as well.

Other changes could be in store, given what Otellini told analysts on April 27—that the review would take a hard look at the companys business and consider the possibility of restructuring, selling or shuttering areas, particularly those that lose money—a message reiterated in the July 13 memo to employees.

One likely result of layoffs, Freedman wrote, would be Intel using cost savings to reinvest in R&D of products for PCs, its core business.

Intel has moved in other ways to increase its ability to compete. It has brought forward the release dates of its Core 2 Duo processors, due out for desktop PCs on July 27, and its Xeon 5100 processors, which arrived on June 26.

It has also set aggressively low prices for its Core 2 Duo desktop processors. Its top-end Core 2 Duo desktop chip, the 2.67GHz model E6700, will be priced at $530, for example. AMDs 2.6GHz Athlon 64 X2 5000+ is now $696.

AMD has pledged to respond with a July price cut.

In addition, Intel is aiming to ratchet up the overall speed with which it moves. It plans to shift much more quickly to new processor architectures, redesigning the circuitry that underpins its PC and server chips every two years, for example.

By adopting new architectures—themselves simplified to allow more elements to be reused—on this schedule, Intel said it believes it can rapidly drive up its chip performance, while continuing to keep power consumption under control.

Intel reports its second-quarter earnings on July 19. At that time, company executives are expected to shed more light on the results of the ongoing review.

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