Intel reorg shows clouds ahead

April 22, 2016 // By Rick Merritt
The world’s largest semiconductor company will both focus and diversify in an effort to reinvent itself. It’s an expensive proposition in a down year as Intel Corp. predicted a steeper decline than previously thought for the PC market that once defined it.

Analysts lauded Intel’s dominance in cloud computing which remains its strong foot. But they expressed skepticism its bets in memory and the Internet of Things will pay off as smartly as the company hopes.

“Forty percent of our revenues and 60% of our margins come from outside the PC – now it’s time to push the company over all the way to that strategic direction,” said chief executive Brian Krzanich in a conference call laying out plans to cut 12,000 employees at a cost of $1.2 billion.

The reorg tops 10,500 people his former boss, Paul Otellini, laid off in 2006 at the dawn of the mobile boom when the PC decline began in earnest. Microsoft, the company’s Wintel partner in the PC boom, paid $1.6 billion to cut 18,000 people when its new CEO took charge last year.

The layoffs pale to the more than 50,000 their top customer, Hewlett-Packard, has laid off in recent years as it split and split again.

More recently the pain has spread throughout the maturing semiconductor industry, triggering a massive consolidation of giants such as Broadcom and Avago as well as 15% layoffs at Qualcomm amid slowing smartphone growth.

Intel will maintain its plan to spend $9.5 billion on capital equipment this year, mainly for 10nm processors and 3D NAND flash. Meanwhile new division president Venkata "Murthy" Renduchintala is evaluating which Intel products will get the axe.

After a worse than expected first quarter, Intel predicted its second quarter will see revenue fall slightly to $13.5 billion. It drew down forecasts of 2016 revenue slightly to mid-single digit growth and raised its predictions for PC declines to high single digits.

“This may mark the beginning of the end for the PC era -- it was a good run,” said Nathan Brookwood, principal of market watcher Insight64 (Saratoga, Calif.). “Intel was a second-tier chip maker in the 1980s when the PC came along and here we are with the PC beyond middle age,” he said.