Intel needs to adapt to the dynamics of cloud computing and IoT

Faced with a falling demand from personal computers, Intel has to adapt to new computing technologies or go the way of the dinosaurs.

Intel Corp has disclosed that it is set to cut 11% of its global workforce, equivalent to 12,000 jobs. Intel announced this strategic move as it plans on increasing its focus on its prime areas of expertise, i.e. making microchips that powers prevalent in internet connected devices and data centres. Incidentally, its success was what gave birth to the personal computer industry.

Of late, this segment has seen a steady decline, affecting many companies associated with it, including Microsoft Corp and Dell. With their growing computing power, mobile phones are increasingly replacing consumer’s computing needs to run their businesses. Incidentally, during the first quarter of this year, shipping of personal computers globally fell by 11.5%, as per IDC, a tech research company.

This has had an impact on Intel, the world’s largest chip manufacturer, which has lowered its revenue forecast for this financial year. It now expects its revenues to rise in mid-single digits rather than its earlier forecast of mid- to high-single digits.

Intel’s shares were down by 2.2% at $30.90 in extended trading.

Although Intel did not identify where these jobs cuts would happen, geographically, most of its factories are located in the United States. By downsizing, Intel plans on saving annually $1.4 billion per year from mid-2017 and expects a pretax restructuring charge of $1.2 billion in the second quarter.

Furthermore, Intel has informed that Stacy Smith, its Chief Financial Officer, will move to a new leading role which will involve manufacturing, operations and sales. It will soon start formally looking for a new CFO.

As per Smith the PC market is likely to decline by a high single digit in 2016. The cause for this could be associated with falling demand from emerging nations and China.

“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. He went on to add, that the PC industry has already seen some of the weakness identified earlier by Intel.

With weakening demand, California based Intel, is increasingly focusing on the high margin business of data centres. It has already made inroads in the mobile devices market and is facing stiff competition from Samsung Electronics Co. and Qualcomm Inc., who are dominant players in that market segment.

Intel has said in a statement that by mid-2017, job cuts and restructuring would help “accelerate its evolution from a PC company to one that powers the cloud and billions of smart, connected computing devices.” It went on to add, that already 40% of its revenues come from data centres and Internet of Things.

Hans Mossesman, an analyst at Raymond James has a different take on the matter. He thinks the problems currently plaguing Intel is not broadly related to the tech sector but has more to do with its “under perform[ance]”

“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,” said Mosesmann.

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Categories: HR & Organization, Strategy

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