Intel Accelerates Shift Away from PCs; Will Cut 12000 Jobs

By John Russell

April 19, 2016

Intel took a major step yesterday in its transformation from a PC company to one focused on the data center, Internet of Things (IoT), and the cloud announcing plans to cut approximately 12,000 jobs in a restructuring. The announcement coincided with release of Q1 results in which Intel had GAAP revenues of $13.7 billion and net income of $2.6 billion.

For the Q1 period, Intel generated approximately $4.0 billion in cash from operations, paid dividends of $1.2 billion, and used $793 million to repurchase 27 million shares of stock. Intel also announced CFO succession planning in which current CFO Stacy Smith, a 28-year Intel veteran, will transition to a new role leading sales, manufacturing and operations once his successor is in place

This is a busy time for Intel, with the PC declining, and alternative processors, notably ARM and IBM Power, seeking to gain a foothold. Intel dominates the server market, for example, with more than 98 percent market share according to analyst firm, IDC, but both ARM and Power are ramping up their efforts.

There had been speculation surrounding the job cuts for a few days following a report late last week in The Oregonian that Intel would cut staff. Earlier in April Intel announced the departure of two senior executives, Kirk Skaugen, senior VP in its Client Computing Group, and Doug Davis, the general manager of the Internet of Things unit, prompting speculation of further shakeups.

“Major jobs cuts are always painful, but Intel’s stated goal is to focus less on declining markets such as PCs and more on growing markets like the data center.  Half of Intel’s operating profit now comes from the company’s Data Center Group. IDC forecasts HPC data centers to be an especially strong growth area, expanding from $21 billion in 2015 to $31 billion in 2019. We expect Intel to focus even more sharply on the global HPC market,” said Steve Conway, IDC research vice president, HPC/HPDA.

In an email to the company, CEO Brian Krzanich wrote, “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…We expect that this initiative will result in the reduction of up to 12,000 positions globally.”

Intel reported the staff reduction would be achieved by voluntary and involuntary departures, global site consolidation, and efficiency initiatives, with majority of these communicated over the next 60 days and some spanning into 2017. It’s not yet clear what the specific impact will be on Intel’s HPC business.

“The Client Computing Group is still the largest segment of Intel’s overall business, and the company can be expected to support it for the foreseeable future. I don’t see any indication that Intel is moving away from its support of HPC. HPC servers tend to be high end products based on requirements for memory, fast processors, and to a growing extent acceleration. HPC requirements mesh will with Hyperscale requirements, and the company’s strategy for networking and storage,” said Christopher Willard, chief research officer, Intersect360 Research

HPCwire will follow the story and update as needed.

Krzanich’s email, released by Intel, can be read at https://newsroom.intel.com/newsroom/wp-content/uploads/sites/11/2016/04/krzanich-restructuring-memo.pdf

The formal release of financial results can be read at: http://files.shareholder.com/downloads/INTC/1917744028x0x886656/2F8EE4BF-DF56-41DB-93AE-33E1508AB634/Earnings_Release_Q1_2016_final.pdf

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