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Intel Trims 11 Percent Of Workforce As Desktop PC Market Nosedives

Intel is carving 11,000 jobs out of its global workforce as it struggles to reshape itself amidst the continuing decline of the PC market. The drastic cuts account for 12 percent of Intel's 107,000 employees, and the company hopes to complete the layoffs by the middle of 2017.

The cuts will come as a byproduct of a restructuring initiative that will incur a $1.2 billion charge in the second quarter. Intel projects the cuts will save $1.4 billion per year by mid-2017.

Intel announced the cuts during its quarterly financial disclosures, which actually reflected that the company did a good job of keeping expenses in line. Intel's sales weighed in at $13.7 billion, and though it was up 7.2 percent year-over-year, it was below a projected revenue of $13.8 billion. Intel also projected its revenue in the second quarter to reach $13.5 billion, which is below analyst estimates of ~$14 billion.  

Intel, and the industry at large, eagerly awaited a Windows 10 refresh cycle that never materialized. To say the PC market is withering on the vine is an understatement; it declined by 10.6 percent in 2015 and added an additional 9.6 percent in the first quarter of 2016, thus reaching its lowest levels since 2007. Intel indicated that it expects the PC market to continue to decline in the "high single digits" for the remainder of the year.

Intel suffers at the whims of the PC market, which accounts for nearly half of the company's revenue. In the past, Intel offset the declining market by plundering AMD's market share, but Intel has largely picked the AMD carcass clean. Intel's client PC division scored $7.5 billion in sales in the first quarter, which is up 2 percent year-over-year but is a 14 percent decline compared to the prior quarter. A slight uptick in the CPU Average Selling Price (ASP) also helped Intel.

Intel was vague about the details of the restructuring but indicated that it is adjusting its sails to catch the incoming wind from the IoT and cloud markets while intensifying its datacenter focus.

The datacenter and cloud markets are low-hanging fruit for Intel. They already represent over 40 percent of the company's revenue and the majority of its operating profit. The company currently owns 99 percent of the datacenter CPU market but finds itself staving off a groundswell of competition from the likes of IBM and Qualcomm. The Data Center Group (DCG) grew 9 percent year-over-year (below projections of 15 percent).

The signs of a pending shakeup were present. Intel announced the abrupt departure of leading executives in its PC and IoT divisions earlier this month after it appointed the prominent ex-Qualcomm executive Venkata Renduchintala as the executive vice president, and president, of Intel's client products (PCs, smartphones, tablets and IoT). Intel does not have a commanding position in the burgeoning IoT segment, but it intends to experience more success there than it did with its mobile endeavors. 

Intel is at near-record staffing levels, in part due to its Mcafee and Altera acquisitions. In contrast to the majority of the tech industry, Intel tends to preserve its workforce during times of change. It is common to encounter Intel employees with decades of tenure, so the cuts will be particularly painful.

"These are not changes I take lightly. We are saying goodbye to colleagues who have played an important role in Intel’s success. We are deeply committed to helping our employees through this transition and will do so with the utmost dignity and respect," wrote Intel CEO Brian Krzanich in a memo to employees.

Intel's stock remained somewhat steady after the announcement, which is in stark contrast to the 25 percent drubbing Seagate received with a similar announcement last week. Both companies rely heavily upon the client PC market, which is clearly in the midst of a secular decline. However, Intel projected the market trends better, thus controlling its expenses and still maintaining healthy margins. Intel is also more diversified (at least in terms of successful ventures) than Seagate and has a plan in place to transition to more profitable climes, whereas Seagate's plan is somewhat muddy.

Intel serves as the cornerstone of the PC market, and its adjustment raises the alarm that the declining PC market will likely never recover.

We know the breadth of the cuts, but not where Intel's ax will fell the most trees. The extent of the desktop segment cuts is not entirely clear, but it is likely to reduce marketing spend and other activities geared at engendering growth.

The impact to the enthusiast is unknown. Intel will likely continue to preserve most of its high-margin products in the client space, and we do know that it still maintains strong margins on enthusiast-class hardware. Just don't expect Intel to drop the price of Extreme Edition CPUs; it is clearly attempting to soak up margin where it can.

In either case, there will be a tremendous amount of uncertainty in the industry (in particular for the downstream PC companies) as we await more details of one of the largest transitions in Intel's history.

Paul Alcorn is a Contributing Editor for Tom's Hardware, covering Storage. Follow him on Twitter and Google+.

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  • InvalidError
    Intel serves as the cornerstone of the PC market, and its adjustment raises the alarm that the declining PC market will likely never recover.
    I don't know where the optimism of any chance of recovery comes from: nearly everyone who wants or needs a PC already has one and at the snail's pace PC performance has been improving in more recent years, replacement cycles are getting three or four times longer than they used to be for the bulk of systems out there.

    Unless there is a paradigm shift in how a large chunk of the PC market uses PCs, this can only get worse in the future.
    Reply
  • pug_s
    This is such BS. Intel basically has the price command structure for PC's already and is making very good profit but decided to cut its workforce anyways. Intel's management seems to be on the cut and run attitude in terms of getting to other market segments. Microsoft had managed to reach beyond its OS business like xboxes and its cloud business, so why can't Intel?
    Reply
  • Biscuit42
    "To say the PC market is withering on the vine is an understatement;"

    Partially, I think that's because Intel is a victim of its own success. My 2015 Skylake I5 had a 2 frame per second improvement over what my 2011 Sandy Bridge did. That's inconsequential, and I could have happily have continued with my I5-2500K and not bothered to upgrade.
    Reply
  • jimmysmitty
    17846736 said:
    This is such BS. Intel basically has the price command structure for PC's already and is making very good profit but decided to cut its workforce anyways. Intel's management seems to be on the cut and run attitude in terms of getting to other market segments. Microsoft had managed to reach beyond its OS business like xboxes and its cloud business, so why can't Intel?

    Intel does. In fact they have a hand in the majority of PC technology. That "Lightning" cable/port Apple uses? That is Intels Thunderbolt. Apple just adopted it first. Those Crucial SSDs? They use Intel/Micron NAND developed by Intel. Most DRAM specs are set with Intels influence.

    The problem is that the client market is still big. I think this article is overstating how much they rely on it when their server CPUs command a much higher price and have much higher margins than their desktop counterparts but it is still important.

    They are trying to push into the UMD market but it is not that easy. It is the same as say Google trying to push into the desktop market against Microsoft. It can be done but will be very hard since people are adverse to change.
    Reply
  • PaulyAlcorn
    Partially, I think that's because Intel is a victim of its own success. My 2015 Skylake I5 had a 2 frame per second improvement over what my 2011 Sandy Bridge did. That's inconsequential, and I could have happily have continued with my I5-2500K and not bothered to upgrade.

    I think part of this falls on software as well. There is nothing to PUSH the need for "more." What does it say when a dual core from a few years ago can still run the majority of applications?
    Reply
  • stevenrix
    I love it when companies blame the tablets' market instead of blaming themselves for not coming up with innovative products. The PC market stagnated for the last few years because there is no real evolution in terms of products offer and no real significant technological changes (4th and 5th and 6th GEN CPU for example). Besides the global recession never really recovered so that adds up to the stark global situation in other fields. The recession in China also crippled many companies inside the global village: a lack of sales in China will unfortunately eliminate jobs in the USA and other parts of the world.
    Reply
  • stevenrix
    "To say the PC market is withering on the vine is an understatement;"

    Partially, I think that's because Intel is a victim of its own success. My 2015 Skylake I5 had a 2 frame per second improvement over what my 2011 Sandy Bridge did. That's inconsequential, and I could have happily have continued with my I5-2500K and not bothered to upgrade.

    This year alone i upgraded to 5 new computers: I chose only 2 skylakes (the 6700 and the 6700K), and decided to go with 2 Core I5 and 1 Core I3 with X99 chipset instead and DDR-3 memory support. Besides hardware features, there was also a lack of supported hardware back then with my OS X system, this is why i chose the 4970K over the 6700K, and at this time there was also no skylake support for my ESXI 6.0 hosts (the support has been added since). It is very important to get the software refresh with hardware at the same exact time
    Reply
  • Ambular
    Hm, maybe someone here will know...has anyone ever tried to come up with an estimate of how many new PCs are being built yearly? Don't the statistics just measure how many prebuilt systems are being shipped?

    I know it would be difficult to get a really accurate count, since it's hard to say whether a given component is going into a new build or upgrading an old one. But surely some clever statistician somewhere has tipped to the fact that assembling a PC is much easier than it used to be, and that this is going to affect the sales numbers for major PC manufacturers, but also have an impact on the total number of new PCs actually coming online each year?
    Reply
  • jaber2
    Layoffs have nothing to do with the shrinking market or bad numbers, it has to do with more automation eliminating most jobs or consolidating them, Intel will continue to dominate with higher sales and lower expenses which = higher profits, this is what the share holders want.
    Reply
  • It all to blame Microsoft who didn't come with anything innovative since Windows 8 release. People absolutely hate Windows 8.x and Windows 10.
    Reply