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Intel to Undertake Broad Restructuring
By Jessica Davis -- Electronic News, 4/27/2006
The world’s largest chip company is embarking on a broad restructuring initiative – the biggest since the mid-1980s – with plans to cut $1 billion in spending for the rest of 2006 and completely revamp its operations this year and beyond.
Intel CEO Paul Otellini made the restructuring announcement during the company’s Spring meeting for financial analysts today in New York, after alluding to an examination of efficiencies during last week’s quarterly earnings call with analysts.
Check back with Electronic News tomorrow for Intel Senior VP Pat Gelsinger's perspective on his company's future businesses and markets in our Executive Insight section.
Intel is undergoing a 90-day review period to identify target areas, Otellini said today. The company will focus on non-performing units, capital efficiencies and cost per unit. During last week’s earnings call Otellini said that Intel does not expect any significant adjustments in production levels for the remainder of 2006. Again, at today's meeting, Otellini said the company would protect its process technology ramps, including 45 nanometers, from the cuts. “We are well aware of the realities of the current and future business outlook,” Otellini told analysts today. “We are taking actions to address these realities.”
Specifically, Otellini said, Intel will review the entire company’s operations in the broadest analysis conducted since the mid-1980s when it re-evaluated its operations and changed from a memory company into a microprocessor company.
“At that point in time we had to look at every element of our operations and figure out what we needed for the business as it evolved going forward,” said Otellini. “That’s the kind of scrutiny we are taking as we go into this project.”
Such a project is much more complex than a simple workforce reduction, Otellini said. The project will go through the entire company operation by operation and an analysis will be completed within 90 days, with the effects likely continuing operationally through 2007.
Otellini promised updates on the project, and said the first one would likely come in Q3.
Last week during its earnings call Intel adjusted its forecast for 2006’s revenues to down 3 percent compared to its previous forecast of up 6 percent to 9 percent. The company said that it encountered inventory problems at customers and in the channel that contributed to a slower than seasonally expected first half. But Intel said it expected to gain share in the second half as it ships new processors based on its new Core Microarchitecture.“We are undertaking comprehensive analysis of our company with goal of significantly increasing overall efficiency in 2007 and beyond,” Otellini told analysts last week. Plans for spending cuts this year include a $400 million reduction in 2006’s research and development budget and a $300 million reduction in 2006’s capital spending budget.
Otellini did not specify whether the restructuring and spending cuts would translate into layoffs.
Intel’s restructuring effort comes at a time when Intel’s key market, computing, has slowed its growth rate, and the company’s smaller rival, Advanced Micro Devices (AMD) has begun to break Intel’s stronghold on the commercial market space.
In a brief report issued this week, analyst firm Insight64 noted the change of fortunes between the two companies.
“AMD’s dollar share of the x86 processor market increased by 210 basis points between Q4 2005 and Q1 2006,” said Nathan Brookwood, president of the firm, in a statement. “Second, AMD’s dollar share has increased in 11 of the past 13 quarters, and broke through the 10 percent barrier in Q2 2005…
“The dollar share shift over the past five quarters is truly unprecedented in this market segment, and highlights the challenge Intel faces as it brings next generation products to market in the second half of the year,” Brookwood said.
