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Intel to Cut 12,000 Jobs, or 11% of Workforce

Intel Corp. said Tuesday it will cut 12,000 jobs, or 11% of its workforce, by mid-2017 amid a reorganization in which data centers and the Internet of Things (IoT) businesses become the chipmaker’s “primary growth engines.”

Intel, a key supplier of silicon for DOCSIS cable modems, gateways and set-top boxes, said the workforce reduction will occur through a combo of voluntary and involuntary departures and “re-evaluations of programs.”  Most of those actions will be relayed to employees over the next 60 days, with some spilling into 2017, the company said.

“We expect to realize over half of the total workforce reduction by the end of this year,” Stacy Smith, Intel’s CFO and EVP, said on yesterday’s earnings call.

Intel said the reorg is expected to result in $750 million in savings this year and an annual run rate savings of $1.4 billion by mid-2017. As a result, Intel will also post a one-time charge of approximately $1.2 billion in the second quarter.

Intel said the changes are being made to amid an initiative to “accelerate its evolution from a PC company to one that powers the cloud and billions of smart, connected computing devices.” It said data centers and IoT delivered $2.2 billion in revenue growth last year, and made up 40% of revenue and the majority of operating profit, largely offsetting declines in the PC segment. Intel said it saw the PC total addressable market drop 10% from 2013 to 2015.

About 40% of our Intel’s revenue and 60% of its margin comes from areas other than the PC sector, Intel CEO Brian Krzanich said on the call.

“It's time to make this transition and push the company over all the way to that strategy and that strategic direction. So that's why we wanted to do it now,” he said.

He also said the restructuring will enable Intel to invest in the aforementioned growth areas. “[W]e are going to continue to double down, focus on those.”

As investments go, they will focus on “thin-and-light devices,” Krzanich said, but added that Intel will also “push even harder on high-end gaming systems, which are growing at a very fast rate.”

For Q1, Intel posted earnings of 54 cents per share, up 20% from a year ago, on revenues of $13.8 billion, up 8% versus a year ago.