July 13, 2006 11:10 AM PDT
Intel to ax 1,000 managers
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"This step is important because it addresses a key problem we've found in our efficiency analysis: slow and ineffective decision-making, resulting, in part, from too many management layers," Chief Executive Paul Otellini told employees in a memo sent out Thursday and seen by CNET News.com.
Intel spokesman Chuck Mulloy confirmed the layoffs Thursday, saying they would "both reduce costs and improve decision-making and communications." He didn't disclose the financial costs or benefits of the cuts, but said Intel plans to share more details Wednesday when it discusses financial results for the last quarter.
The restructuring and regrouping effort comes after two years of sluggish performance at Intel. In 2004, the company had to delay or cancel a number of products. In 2005, Intel steadily lost market share to rival Advance Micro Devices.
"Intel has been besieged by slowing PC market demand and uncharacteristically fierce competition from rival AMD. The primary concerns facing Intel's operations are declining revenues and profitability," said Martin Kariithi, an analyst at Technology Business Review.
The move, along with the sale of some communications processor assets to Marvell Technology Group in June, is part of an efficiency review Intel launched in April to become more competitive. More cuts are likely as a result of the review, Otellini said.
"You should expect that we will continue to take actions, including selective reductions, as we complete analyses and decisions about investments, expense levels and organizational structures," Otellini said in the memo. "Over the last five years at Intel, the number of managers has grown faster than our overall employee population. Our efficiency analysis and industry benchmarking have shown that we have too many management layers, top to bottom, to be effective."
Kariithi estimated that the revenue per Intel employee dropped from $408,175 in the fourth quarter of 2005 to $371,075 in the first quarter of 2006, but he expects another layoff to be announced during the financial results announcement.
To return revenue per employee to where it was a year ago, Kariithi said, Intel will have to lay off 10 percent of its staff--about 10,000 people.
Although AMD has been gaining share against its rival, it has had its own difficulties as well. Last week, the company announced revenue of $1.21 billion, significantly less than the $1.3 billion average expected by analysts and a 9 percent decrease over the first quarter.
Most managers losing their jobs will be notified Thursday and Friday, Otellini said, and will get a minimum of three months' separation pay.
Henri Richard, executive vice president of sales and marketing at AMD, earlier this year said that AMD made some of its gains in part because of Intel's complacency. Characterizing Intel as fat and sluggish has become a recurring theme with AMD.
In an interview Wednesday, Thomas Sonderman, director of automated precision manufacturing at AMD, said that the chipmaker realized in the 1990s that it never would be able to have as large a factory footprint as Intel. As a result, it optimized what it could do in a single factory.
"We didn't have the luxury to be fat, dumb and happy," he said.
Otellini rebuffed the notion that Intel had become self-satisfied earlier this year. Still, Intel has had trouble overcoming institutional inertia. In early 2004, CNET News.com asked then-CEO Craig Barrett and Otellini if the company's emerging problems were the result of overconfidence. The two said no, arguing that the problems that had emerged had fairly specific causes. A few months and a few more product problems later, Barrett issued an internal memo warning employees that the company had become somewhat complacent and needed to refocus.
Despite the warning, Intel didn't rebound. And employee head count went from about 85,000 at the end of 2004 to 100,000 at the end of 2005.
The 90-day efficiency review began in late April and therefore should be complete in coming weeks. Mulloy declined to say when actions resulting from the review would be done because the company doesn't yet know, he said.
That review has already resulted in the sale of Intel's XScale communications and applications chip technology to Marvell. There have been some smaller actions from the review, Mulloy said, including the closure of a 19-person lab in Glasgow, Scotland.
Intel periodically conducts purges. After a mini downturn in 1998, the company reduced head count through voluntary departures and layoffs. After bulking up with several acquisitions in the dot-com era, the company subsequently whacked divisions and sold off other groups.
In Thursday's memo, Otellini sought to fan Intel employees' competitive fires.
"We have done extremely well over the past 25 years of the PC era. But we need to adjust now for where our industry is going. Competition will intensify across our product lines. Pricing will be aggressive," he said. "Our objective, and our destiny, is to refashion Intel now while we have the means and the time to do so, and ensure we continue to remain No. 1."
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