Ahead of today’s Q1 2016 earnings release and call, Intel has announced that they are going to be cutting a significant number of jobs over the next year. The job cuts come as part of Intel’s larger and ongoing restructuring efforts, as the company grapples with an overall soft PC market and continued struggle to carve out a larger piece of the mobile market. Ultimately Intel’s looking to invest in what they consider to be high-growth areas, which means laying off employees in stagnant business units while making other investments in those areas that are seeing continued growth.

The job cuts themselves are expected to involve up to 12,000 employees, or about 11% of the company’s workforce. Intel will be eliminating positions through a combination of both voluntary and involuntary layoffs, and in the process will be consolidating the remaining workforce and their respective sites. Intel expects the bulk of the layoffs to occur within the next 60 days, with the entire process stretching into mid-2017.

The company’s pre-earnings announcement does not state where these layoffs will come from, and we’re expecting at least some additional detail to come out of the company’s earnings call which is still on-going. However the company is reiterating what markets and businesses they see as growth opportunities and will be investing into for the future, which offers some basic guidance on what the company sees as their most important businesses. Intel’s Data Center and Internet of Things businesses are specifically being cited as their stand-out businesses, which combined with memory and FPGAs provided 40% of the company’s revenue and a majority of their operating profit. Meanwhile in the consumer/client market Intel has seen good returns on 2-in-1s, gaming and home gateways. Conversely, the overall (client) PC market is still in decline, and I expect that a number of the cuts will be centered on that.

Finally, Intel has also detailed the costs of their restructuring. The company will incur a one-time charge of $1.2 billion in Q2, with this presumably being a significant number of severance payments. In turn, the company expects to save $750 million this year, with an annual run rate savings of $1.4 billion per year after the last of the layoffs are completed in mid-2017.

We’ll update this article later today with more information once it comes out of Intel’s earnings call. Ultimately the soft PC market has been a continuing trend for Intel over the past few years, so that we’re seeing Intel react to it now is not unexpected. However it will be important to see just how the layoffs are organized – for example, if Intel makes much in the way of cuts in the fab business – as Intel is a large company. What this means for future client PC investments, mobile, could prove to be significant.

Update: Intel's earnings call has shed a bit more light on the restructuring, but Intel is not spelling out exactly where the bulk of the cuts are coming from at this time.

Overall Intel did reiterate that although the client business has been weak, the company's restructuring plans will be touching more than the client business. The impact to the client business then is that it is being refocused via the restructuring, hence the earlier comments on what Intel sees as the client growth markets. Undoubtedly aspects of the client business are in the crosshairs given the continued slowness in the market, but Intel isn't saying too much more than that.

The company has also made it clear that they're not backing off on fab/manufacturing investments in the near future. Capital expenditures on 10nm and 3D NAND continue untouched even with the restructuring, and overall Intel's technology cadence plans have not changed. Farther ahead, the company has indicated that they are being mindful of their capable competition, and that they need to stay ahead of them, including getting back to a two-year cycle if at all possible.

Finally, Intel has offered a bit more information on the timeline for the restructuring itself. While the majority of the notices to employees will go out in 60 days, the projection is that only about half of the layoffs will be completed by the end of this year, which implies the rest will happen in H1 2017. Part of this comes down to the fact that while Intel has a target number for employment, they have not decided whether they will end any product lines entirely. Intel is in the process of undergoing a complete review of the business to identify any products the company may want to cease, and Brian Krzanich has said that when the review is done there's likely to be a few products that get flagged.

Source: Intel

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  • knightspawn1138 - Tuesday, April 19, 2016 - link

    Don't think of it as downsizing. Think of it as a process node reduction.
  • jwcalla - Tuesday, April 19, 2016 - link

    It'll be interesting to see how much R&D is impacted.
  • webdoctors - Tuesday, April 19, 2016 - link

    Sounds like almost all the layoffs will be in USA.

    Based off the numbers, $1.4B/yr, and 12K layoffs, the expectation is a savings of $116K per employee per year. If we assume 90% of those are in the USA, that would bump up the savings to ~$130K/yr assuming the foreign workers are free (but than they wouldn't get laidoff if they were free so that is not a good assumption).

    Its unlikely the cuts are to fabs since those dont run themselves, its probably R&D and chip engineering. Is this to make room for an acquisition perhaps? Maybe buy salesforce? That's more than all the employees at AMD, so it would have to be a big acquisition if it was one.
  • extide - Tuesday, April 19, 2016 - link

    Where do you come up with them buying salesforce? Is that an existing rumor or something? Just seems like an oddly random thing to speculate.
  • snowmyr - Wednesday, April 20, 2016 - link

    Just have a lot of salesforce stock :/
  • Ej24 - Tuesday, April 19, 2016 - link

    It sounds like a lot but think about it like this. Companies, on average, experience ~5% turnover per year in employees. This isn't THAT big. It's 2 years of turn over, probably in the same jobs that experience high turn over.

    Intel isn't all fabs and R&D, there's janitors, secretaries, accountants, HR, and so on. I doubt they'll really be shrinking PC fab and R&D, probably just the support staff around that department needed to maintain rapid growth such as hiring, payroll and training. If you think about it, this is more like a hiring freeze than a full blown workforce reduction.
  • jwcalla - Tuesday, April 19, 2016 - link

    That's a good spin on it.
  • webdoctors - Tuesday, April 19, 2016 - link

    But the problem is Intel already had said last year they would reduce their workforce through freeze and attrition by ~5% last year. They had the program where they would offer incentives for folks to quit so they could reduce their workforce. This announcement is in addition to that, so I don't think the folks who were already going to leave are still there since they would've left last year when Intel first introduced the program with favorable quitting incentives (like 2-3 weeks severance for every year accrued plus some cash).
  • Krysto - Wednesday, April 20, 2016 - link

    Turnover is not the same as layoffs. Turnover is change of employees. Are you saying Intel is just going to hire some OTHER 12,000 employees over the next 2 years?
  • Murloc - Wednesday, April 20, 2016 - link

    no, he's saying that half of that reduction will happen simply through a turn-over freeze, so it's not as massive as it seems.
    They've said as much too, voluntary lay-off = freezing turn-over and providing good packages for people who leave.

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