Intel seeks silver lining in cloud

April 20, 2016

Facing a struggling PC market, Intel announced yesterday an expected restructuring initiative to accelerate its evolution from a PC company to one that powers the cloud and the Internet of Things—a topic of considerable hype and opportunity. The company said the data center and IoT businesses are Intel’s primary growth engines, with FPGA technology (obtained through the Altera acquisition) and memory offering opportunities. These growth businesses, Intel said, delivered $2.2 billion in revenue growth last year and made up 40% of revenue and the majority of operating profit, which largely offset the decline in the PC market segment.

The changes will result in the reduction of up to 12,000 positions globally— approximately 11% of employees—by mid-2017 through site consolidations and combination of voluntary and involuntary departures. The majority of these actions will be communicated to affected employees over the next 60 days with some actions extending to 2017.

“Our results over the last year demonstrate a strategy that is working and a solid foundation for growth,” said CEO Brian Krzanich in an email to employees. “The opportunity now is to accelerate this momentum and build on our strengths.”

He added, “These actions drive long-term change to further establish Intel as the leader for the smart, connected world. I am confident that we’ll emerge as a more productive company with broader reach and sharper execution.”

Intel said the company plans to increase investments in its data center, IoT, memory, and connectivity businesses, as well as growing client segments such as 2-in-1s, gaming, and home gateways.

Don Clark and Tess Stynes in The Wall Street Journal write of Intel’s struggles to gain in a foothold in the mobile market, “Makers of handsets overwhelmingly chose chips based on designs licensed from ARM Holdings PLC, which are available from a plethora of suppliers, and Google Inc.’s Android software, which is available free. No matter how good Intel or Microsoft products became, they could never counter those fundamental changes.”

They note that sales of PCs have been falling since 2010, with Gartner estimating a 10% drop in the first quarter after the market seemingly having plateaued.

Clark and Stynes quote market researcher Rob Enderle as saying, “They’ve looked at the decline of the PC market and clearly decided that they are going to put most of their effort elsewhere.”

Intel expects the program to deliver $750 million in savings this year and annual run rate savings of $1.4 billion by mid-2017. The company will record a one-time charge of approximately $1.2 billion in the second quarter.

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