February 20, 2001 3:55 PM PST

Intel delays raises, curbs hiring

Intel will delay employee raises, curb hiring, and cut back on expenses in an effort to weather the downturn in the U.S. economy.

The Santa Clara, Calif.-based chipmaker told employees in a memo Tuesday that the company has imposed a wide variety of cost-control measures designed to reduce operating expenses by hundreds of millions of dollars. The company is not reducing capital spending or its research and development budget, but it is cutting costs nearly everywhere else.

Layoffs are not being imposed at this time, Intel spokesman Robert Manetta said in regards to the memo, but the company hopes to cut back on overall headcount through attrition and strong limits on hiring. Typically, the company loses a single-digit percentage of its work force annually.

One area where employees will definitely feel the impact is in raises. Usually, the company gives annual raises in March or April. Now, non-managerial employees will likely receive half of their 2001 raise this spring and the other half later in the year, he said. Higher-level managerial employees likely won't see any raises until the fall.

"Hopefully, if things are back in shape, we can deliver the raises by October," Manetta said. "We see this as a pro-active way to cut back on costs...We hope to save hundreds of millions in the current year."

Although Intel said it isn't planning layoffs for now, US Bancorp Piper Jaffray analyst Ashok Kumar predicts that the company will begin to eliminate a number of the start-up divisions it created in the heady days of 1999 and 2000, which could lead to employee reductions. Already, Intel has shut down a Web hosting business and a media streaming venture.

"The company will have to realign their resources toward more strategic divisions," Kumar said. "Eighty percent of the revenue and all of the profit dollars are from PCs."

The company will also cut discretionary spending on such items as travel and overtime by 30 percent for the year, Manetta said. A "free PC" plan under which employees could obtain a computer has been suspended as well.

The cost-cutting memo is quickly becoming a fad in the high-tech world. Applied Materials, Sun Microsystems, Hewlett-Packard, Dell Computer and others have all warned employees that budgets will be pared back this year because of slowing demand for technology products. Some companies, such as Dell, Gateway and HP, have imposed layoffs. Most of the others have imposed strict hiring reductions.

Despite a downturn in the chip market, Intel is not touching its capital or research budgets. For 2001, Intel expects to spend $7.5 billion on capital expenses, up from 2000, and $4.3 billion in research.

The skittishness about cutting these items stems partly from the company's experience in early 2000, when Intel found itself short of manufacturing facilities. Intel is also aggressively trying to move into new markets, such as cell phone chips, which could be hampered if Intel cuts its capital or R&D budget.

The last time Intel faced belt-tightening was in 1998. An unsold surplus of PCs from late 1997 and early 1998 drastically dampened sales for a number of companies, including Compaq Computer, Hewlett-Packard and Intel.

At the time, the chipmaker cut 3,000 positions from a total of 65,000. The company had hoped to accomplish the reductions through attrition but eventually offered voluntary severance packages to encourage employees to leave.

It also imposed a nine-day, unpaid furlough on plant workers in Oregon.

Although the situation in 1998 shares similarities with the current economic situation, differences exist.

Computer penetration was far lower back then. By the middle of 1998, PC sales rebounded and eventually exceeded analyst expectations. In addition, 1999 proved to be a stellar year for sales with unit sales growing 23 percent.

Last year, by contrast, the worldwide market grew by 14.5 percent with U.S. sales slowing to a crawl. Analysts have predicted that the maturing market has hit a plateau, eliminating the type of boomerang-like rebound seen in 1998.

Another difference: Technology companies are a lot bigger than they used to be.

At the end of 2000, Intel had 86,100 employees, 36 percent more than when it cut jobs in 1998. Dell Computer, which announced layoffs last week, has more than doubled in size since 1998.

"Right now, everything hangs on the second half, and right now it is more of a hope than a conviction," Kumar said. "There is no reason to hope for a 'V' shaped recovery."

 

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