As Intel Corp refocuses its business towards making microchips that power data centers and Internet connected devices and away from the declining personal computer industry it helped found, the company said it would cut up to 12,000 jobs globally, or 11 percent of its workforce.
In the face of the PC industry decline, tech companies including the former Hewlett Packard Co and Microsoft Corp have reorganized. Corporations increasingly rely on big machines rather than desktop models to run their businesses while many new tech users around the world turn to mobile phones for their computing needs. Tech research company IDC said that global personal computer shipments fell 11.5 percent in the first quarter.
The world’s largest chipmaker – Intel lowered its revenue forecast for the year. Down from its previous forecast of mid- to high-single digits, it now expects revenue to rise in mid-single digits.
Intel’s shares were down 2.2 percent at $30.90 in extended trading.
Although it did not identify where cuts would be focused geographically, most of Intel’s factories are in the United States. It said it expected annual savings of $1.4 billion per year starting mid-2017 and would record a pretax restructuring charge of $1.2 billion in the second quarter.
Chief Financial Officer Stacy Smith will move to a new role leading sales, manufacturing and operations, the company also said. Intel said it would begin a formal search process for a new CFO.
Compared to a prior forecast of a mid single-digit decline, the PC market is set to decline by a percentage in the high single digits in 2016, expects Smith. Intel Chief Executive Brian Krzanich said on a conference call that a greater than anticipated reductions in worldwide PC supply chain inventory has been a consequence of declines in China and other emerging markets.
“PC demand, at least in the eyes of Intel, is expected to be weaker than the industry originally anticipated,” said Angelo Zino, an equity analyst at S&P Capital Global Market Intelligence.
The company’s comments dashed any hope of recovery even though the industry has already seen some of the weakness experienced by Intel, he added.
As it looks to reduce its dependence on the slowing PC market, the Santa Clara, California-based company has been focusing on its higher-margin data center business. Although competitors Qualcomm Inc and Samsung Electronics Codominate there, Intel has also made inroads into the mobile devices market.
The restructuring would “accelerate its evolution from a PC company to one that powers the cloud and billions of smart, connected computing devices” and the job cuts would be carried out by mid-2017, Intel said in a statement. The statement further added that the majority of operating profit came from sales of products for the data center and the Internet of things which also accounted for 40 percent of revenue.
The problems leading to the job cuts were likely more about Intel than the broader tech industry, said Raymond James analyst Hans Mosesmann, who rates Intel “under perform”.
“The bigger issue is the restructuring and will it be enough for the company to properly adapt to a changing environment where cloud and IoT competitive dynamics are quite different,” Mosesmann added.
(Adapted from Reuters)