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Friday, September 01, 2006

When Intel Cuts Its People Should The CEO Go With Them?

Stocks: (INTC)(AMD)(DELL)

Late word from CNET is that Intel will cut employees next week and cut deep. As many as 20,000 of the company’s employees may go, about 20% of the work force.

Obviously, the reduction will save the company hundreds of millions of dollars during a period.

After hitting revenue of $10.2 billion in the December 05 quarter and operating income of $3.1 billion, both numbers started to slid as chip demand fell and margins were pressured, particularly by rival AMD. By the July 1, 2006 quarter, revenue had fallen to $8 billion and operating income was below $1.1 billion. The problems at large customers like Dell have not helped.

Intel’s stock has fallen from almost $28 last December to under $20.

Intel obviously has to cut its workforce. The demand for x86 chips, even with the new upgraded products the company has introduced, is not rising like it once was. AMD has become an impressive competitor.

But, AMD’s ability to give Intel a run for the money and the fact that the company’s work force got to its current level has to be placed at management’s feet. As Mark Edelstone of Morgan Stanley told the WSJ, "Headcount just ballooned, almost out of control.”

Most of Intel’s problems have occurred on the watch of its new CEO Paul Otellini. If 20,000 Intel employees have to go, he should be the first out the door.

Douglas A. McIntyre

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