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Intel literally decimates workforce: 12,000 will be axed, CFO shifts to sales

While banking a $2bn profit in first three months of the year

Intel will axe 12,000 employees globally – more than one in ten of its workforce – as it moves further away from being a PC chip company.

The layoffs are among the biggest into the company's history, and come as PC industry continues to tank harder than Intel expected.

The Santa Clara-based biz sees a lot of growth in the worlds of data centers, memory, and the internet of things – anything that doesn't look like a traditional desktop computer, the sales of which are dwindling. As a result, fewer processors for normal PCs, laptops and tablets are needed, and so Intel is rejigging itself to focus more on these growth areas – which will mean losing some workers.

"We're seen as a PC company. It’s time to make a transition to push the company all the way over to our new strategy," Intel CEO Brian Krzanich told analysts on a conference call on Tuesday.

The processor giant said about 11 per cent of its 107,000 staffers will be shed through "site consolidations worldwide, a combination of voluntary and involuntary departures, and a re-evaluation of programs."

Intel said the decimation will save it $750m this year and deliver "annual run rate savings of $1.4 billion by mid-2017."

The company will cough up a one-time charge of $1.2bn in the second quarter of 2016 as a result of the headcount reduction. Those affected by the cuts will learn of their fate within the next 60 days. Exactly where the axe will fall is not yet known, but at least the teams working on memory and process shrinks will not be affected, we're told.

In an email to staff on Tuesday, Krzanich wrote:

Since I became CEO nearly three years ago, I have been working with our leadership team and all of you to transform our company from a PC company to a company that powers the cloud and billions of smart, connected computing devices. The data center and Internet of Things businesses are now Intel’s primary growth engines, and combined with memory and FPGAs, form and fuel a virtuous cycle of growth.

Together, these businesses delivered $2.2 billion in revenue growth last year, made up 40% of our revenue, and the majority of our operating profit. Our results demonstrate a strategy that’s working and a solid foundation for growth. Our opportunity now is to accelerate our momentum and build on our strengths. But this requires some difficult decisions.

With that context, today we are announcing a restructuring initiative that will allow Intel to intensify our investments in the products and technologies that fuel our growth, and drive more profitable mobile and PC businesses.

Meanwhile, Intel's chief financial officer Stacy Smith will step down from his role and instead lead "sales, manufacturing and operations" within the biz once his replacement is found. A search is now underway for a new CFO as Smith "transitions" to his new position.

Confirmation of the layoffs – which were rumored to be on their way this week – came as Intel announced its financial results for the first quarter [PDF] of 2016.

What with these redundancies, you'd expect to see some trouble. Its sales figures are at the low end of its estimates for the quarter, but it's not exactly struggling. Here's the numbers for the three months to April 2:

  • Revenue: $13.7bn, up 7 per cent on last year's first quarter, although slightly less than the $13.8bn analysts has expected.
    • For the Client Computing Group, aka PCs and mobile, chip sales rose 2 per cent to $7.5bn. The average selling price (ASP) increased 19 per cent against a 15 per cent drop in volume – all due to a "weaker than expected PC market," according to Smith. Operating profit for the group rose 34 per cent to $1.89bn. Desktop processor volumes dropped 4 per cent, and the ASP rose 6 per cent. Notebook CPU volumes dropped 2 per cent, and the ASP remained unchanged. Tablet chip volumes plummeted 44 per cent.
    • For the Data Center Group, sales rose 9 per cent to $4bn, volumes were up 13 per cent, and ASP dropped 3 per cent. Operating profit rose 4 per cent to $1.76bn.
    • The Programmable Solutions group, aka Altera, brought in $359m in sales, which doesn't include $99m in acquisition-related adjustments. Intel neglected to say what Altera was making before it was bought by Chipzilla in December, but we can say that, this time last year, the FPGA designer had revenues of $435.49m.
    • The IoT Group's sales rose 22 per cent to $651m with an operating profit of $123m, up from last year's $87m. Flash memory sales fell 6 per cent to $557m and the unit made a $95m operating loss versus a $72m operating profit last year. The Security group's revenue was up 12 per cent to $537m, and made an operating profit of $85m, up from $15m this time last year.
  • Net income: $2bn, up 2 per cent on the year-ago period
  • Gross margin: Down 1.2 points from 60.5 per cent to 59.3 per cent. This dip is due to money spent on buying Altera, and the cost to produce 14nm processor parts, among other things.
  • R&D spending: $5.5bn for the quarter, a little higher than this time last year but still about $100m less than expected. Intel isn't ramping up research in terms of spending.
  • Earnings per share: 42 cents, up from 41 cents this time last year. This is way lower than analysts' expectations of 47 cents.

So, essentially, even though CPUs for PCs and mobile are making a lot of money, the writing is clear: volumes continue to fall and cannot be relied upon for the future. Meanwhile, Intel is shoveling more and more data center server processors out the door, and chips going into the internet of things are bringing in more and more sales. That's where Intel wants to be: in IoT, data center and memory – even though the Non-Volatile Memory Solutions Group, which churns out flash memory, is looking a little glum at the moment. FPGAs are another wunderkind in Intel's lineup of growth areas: Xeon processors with Altera programmable cores bolted on are coming this year.

When asked about competition from ARM server chips and IBM's Power9 processors, Krzanich told analysts: "Having been raised by Andy Grove, I'm always paranoid about competition. We live and die by the performance of our products.

"We’re trying to provide solutions from top of rack to bottom of rack ... and own that whole rack from top to bottom. Networking and storage and telco are areas in which we’re gaining share. As our customers move to software-defined infrastructure, and virtual infrastructures, it plays right into the Intel architecture and what we do best, which is general-purpose computing."

In other words, Intel can't wait for networking, storage and telecoms gear to start relying on general-purpose x86-64 processors with software running on top that can keep up with or beat specialist incumbent hardware. Intel's Xeon E5 v4 chips, for example, come with useful bits and pieces like posted interrupts and cache monitoring to streamline virtual machines running networking and telco functions.

This, it hopes, will keep ARM and Power chips out of the picture so it can continue to wield its data center processor monopoly.

Intel reckons it will bank $13.5bn, plus or minus $500m, in revenues in the next quarter. For the full year, it expects sales to be up mid-single digits, down from a prior outlook of mid-to-high-single digits. The company's stock price fell to $30.94, down 66 cents, or 2.09 per cent, in after-hours trading. ®

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