Wrestling with the prolonged decline of personal computers, Intel has announced that it will cut up to 12,000 jobs over the next year. The layoffs, which represent roughly 11% of Intel's workforce, are part of a larger restructuring plan intended to branch the company off into new businesses.
The cuts emerged as the latest growing pains for Intel, the world’s largest semiconductor company, as it attempts to supply chips for more than just the PC market. The company has instead tried to expand into supplying chips for sensors, smartphones, wearables, and the data centers that crunch information gathered by these devices.
Brian Krzanich, chief executive of Intel, said that the restructuring would cut operating expenses around $750 million this year and would result in annual savings of around $1.4 billion by 2017. That revenue, he said, would be invested in new areas like cloud computing and the Internet of Things (IoT), which he has stressed are the fastest-growing parts of the company.
“These actions drive long-term change to further establish Intel as the leader for the smart, connected world,” Krzanich said in an e-mail to Intel employees. “I am confident that we’ll emerge as a more productive company with broader reach and sharper execution.”
The changes were underlined by Intel's first quarter financial results, which were reported with the restructuring plans. The results were slightly under what analysts had predicted, with the company logging profits of $2 billion on 42 cents per share and revenues of $13.7 billion. Financial analysts had predicted earnings of 47 cents per share on $13.8 billion in revenue, according to surveys from Thomson Financial.
The results were headlined by the 14% fall in revenue for the client computing group, which includes computer chips for PC and represents the core of Intel’s business. That division reported revenues of $7.5 billion, which was only 2% higher than a year ago.
The higher margins from its other major business in data centers served to mask Intel’s steadily falling PC division. The data center division reported $4 billion in revenue, down 7% from last quarter and up 9% from a year ago. The Internet of Things division was the fastest growing from last year with $651 million in revenue, up 22% from a year ago.
Krzanich, who has served as chief executive for nearly three years, has guided the data center business through the rise of cloud computing. But he has long struggled to get Intel’s chips into smartphones and other mobile devices. With the company in the middle of the transition into these areas, the company projected lower revenues over the next year.
“We’re moving from a company that was at the center of the PC market to being a company at the center of cloud computing,” said Stacy Smith, Intel’s chief financial officer, in an earnings call with financial analysts.
With companies like Google and Amazon expanding into services like data analytics, Intel is trying to become the main supplier for chips that power their data centers. The company is also working to sell more combined chips, pairing its memory and wireless chips with processors, for instance. Intel could also combine these chips with the field-programmable gate arrays (FPGA) acquired in last year’s buyout of Altera.
The restructuring, which also involves consolidating and ending projects, has sent waves through Intel’s higher ranks. The company has retooled several executive positions, bringing in one executive from Qualcomm and relieving the former vice president of its PC division. Krzanich also said that he expects several products to be discontinued after the layoffs, but he did not say which might be affected.
The company also did not elaborate on what sections of the company would be most affected by the restructuring, but the PC division is expected to be hit the hardest. Krzanich downplayed the idea that Intel was abandoning the PC market, saying that it would invest more in chips for gaming computers and set-top boxes.
“It is absolutely a situation in which we are allowing ourselves to invest at a faster rate,” said Krzanich. “It’s not just about cutting costs in the client area.” Intel will inform most of the workers affected by the restructuring in the next 60 days, the company said.
Also announced with the company’s first quarter earnings was that Smith, the chief financial officer, will move to a new role leading sales, manufacturing, and operations. He will make that transition once Intel appoints a new chief financial officer.