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Monday, August 28, 2006

Is Intel Grabbing the Battle Axe in the Restructuring Review?

When will the Intel (INTC) restructuring be announced? It has been telegraphed from April, but we still do not have all the details out on it yet. There is talk that Intel may announce its restructuring plans as soon as this week, and it looks like the company is behind schedule on announcing it. With how corporate life can be, it would be of no surprise if they announced it this week when so many employees are out on holiday. The stock is up almost 2% today to $19.25, but it is actually up 10.5% since the August 11 close.

Part of the reason for posting this is that today is thatthe recentresearch reports are giving a feel that something is about to happen. Citigroup noted some supply shortages and tight inventory at Intel and Friedman Billings Ramsey upgraded their rating on INTC from a "Market Perform" to an "Outperform" rating and took the target up to $23 from $19. Needham also had some comments on the "processor wars" actually being good for PC manufacturers. Earlier this month Cowen & Co noted that organizational changes will be favorable.

With the pricing cuts, margin squeeze, tight inventories, weak PC sales, the Vista delay, and with the unit spin-off coming IT JUST FEELS AS THOUGH THE RESTRUCTURING IS ABOUT TO HAPPEN. The consensus is starting to look like 10,000 to 15,000 jobs will be cut in total out of the 'top to bottom review' going on at the company. One of the biggest losers may be Oregon, where so many R&D jobs are located. The company has sort of already signalled in the vicinity of 1,000 managerial jobs going away and we already know about the transfer of the 1,400 bodies that will be transferring to Marvell in the unit sale, and about 600 others. This 1,000 and 600 jobs pointed to may be of some debate, and there is a shot that those are overlapping.

What the street is really "hoping for" is bad news for current Intel employees. Unless there is a hidden boom in the PC and semiconductor markets we don't about, the street is sending a subliminal message to Otellini, CEO of the company: "Bring out your battle axe! If you need to go re-hire you will be able to."

Please understand that this is more opinionated than based on sheer fact or based on some secret research report from human resource monitors. The shares were probably punished a little too hard and it looks as though a technician would say the company has finally gotten out of a 6-month downward channel. This opinion is also based on the history of public companies and what they do when trends reach certain points.

Unfortunately, this is probably going to irk employees when or if they read this and they will almost certainly bare the brunt of most of the battle axe when it is wielded. Wall Street often wants different paths than employees, and the painful solution is starting becoming obvious. Understand that some of this has been telegrpahed by the company and industry insiders, but the full details have not yet come out.

This was first telegraphed in April, and they are basically past the date to show their exact plan. "No stone will remain unturned or unlooked at," Otellini said. "You will see a leaner, more agile, and more efficient Intel Corp."

Jon C. Ogg
August 28, 2006

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