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Tuesday, September 05, 2006

Intel Confirms It Will Restructure

Dear employees and managers:

"We hope you had a great 3-day weekend and week off for those of you thattook last week off. Unfortunately, our bloated structure and head-on collision with AMD dual-core processors will require about 10% of you to go."

That of course was not the real message out of Intel (INTC), but Intel has finally confirmed its restructuring. If you wish you can click here to compare to see what we telegraphed last week. This restructuring is actually a bit less than what we were ultimately expecting, but the street may find this ample. The street likely won't complain about the severance costs compared to other such restructurings at other tech companies in the past.

Reports started coming out about Intel layoffs yesterday, but today after the close the processor giant has confirmed it will restructure. It plans $2 Billion expense cuts in 2007 and claims that it will have $3 Billion in net cost cuts annually in 2008.

According to the press release: The company's employee population will decline to approximately 95,000 by the end of this year, resulting from workforce reductions, attrition and previously announced actions. The workforce will decline to approximately 92,000 by the middle of 2007 -- 10,500 fewer than the company's employee population at the end of the second quarter of 2006. In addition to the savings from the workforce reduction, the company expects savings in merchandising expenses, capital and materials. Most job reductions this year will occur in management, marketing and information technology functions, reductions related to the previously announced sale of businesses, and attrition. In 2007, the reductions will be more broadly based as Intel improves labor efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and improves product design methods and processes. On a net-net basis this really looks like the company is only shedding about 5,500 current jobs if you back out transfers and attrition.

The company claims that it expects severance costs to total approximately $200 million, offsetting some of the expected savings from the project's implementation. If it can hold that number down to that amount the street will view this as a real success. The company claims to be in a quiet period as well, so it will not be providing an update to its business outlook.

Jon C. Ogg
September 5, 2006
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