Intel Begins Restructuring
SANTA CLARA, CA - In an overview of its restructuring plan for the long-term future, Intel detailed reductions in workforce, merchandising expenses, capital, and materials. Intel’s widely-publicized competition with Advanced Micro Devices (AMD) is believed to have spurred the effort to streamline and re-evaluate internally, though Intel warns against focusing solely on that competitor. “AMD is only a piece of this; in the future we’ll have new competitors and the marketplace in general will change,” explained Chuck Mulloy, corporate spokesman for Intel. A three-month-long analysis of structure and efficiency resulted in a combination of workforce and non-workforce cuts expected to total $3B in annual savings. Intel has not undertaken such a pervasive restructuring since the 1980’s.
The company will eliminate management, marketing, and information technology positions in 2006, reducing staff from a reported 102,500 to 95,000 people. “A layoff announced in January, sales of the handheld business to Marvel and the communications infrastructure business to Eicon, along with normal attrition,” will factor into these numbers, said Mulloy, adding that some of these positions have already been vacated. 2007 reductions will cover a broader base — affecting laborers in manufacturing and organizationally redundant jobs. In total, Intel anticipates losing 10,500 employees in the restructuring. These actions are difficult but essential to the company’s future, said Paul Otellini, president and CEO. Severance costs should reach approximately $200 million, enough to offset some initial savings.
Promoting education, collaboration initiatives, and corporate responsibility programs will not be affected, noted Mulloy. Critical improvement areas discovered during the analysis included new product introduction (NPI) times, production ramps, human relations, and merchandising - including return on investment (ROI) in co-marketing programs, advertising, and related ventures. “Cutting down the time it takes to introduce a new product, build a factory, or deploy an application in a new market matters more than reducing materials costs. Time is money in our situation,” said Mulloy. Improved use of existing equipment and space were also primary concerns.
Though an update to Intel’s long-term business outlook will not be released concurrently with the streamlining plans, the company did announce rough figures for revenue savings. In addition to the estimated $2B in initial, 2007 savings, the company expects to retain about $3B in 2008 and subsequent years. A $1B capital expenditure avoidance will also contribute to overall savings.
Intel has generated several new product introductions as part of a strategy to compete with AMD. Mulloy says that while AMD relies on corporate partnerships and its agility in the market, Intel uses its size and various marketing strategies in the rivalry. He stressed the importance of streamlining to enter new markets or applications more quickly, and de-emphasized the need to change for near-term competitiveness.