Intel Total Job Cuts: 10,500

By Jessica Davis -- Electronic News, 9/5/2006

Intel’s total job cuts will come in at about 10,500 overall, the low end of estimates offered by analysts and other industry observers.

The semiconductor giant made the announcement today, saying that total headcount will drop to about 95,000 by the end of this year and to 92,000 by the middle of 2007. The cuts are part of the results of Intel’s restructuring following an extensive internal review first announced in April.

The headcount numbers include the actions that Intel has already taken and announced to improve efficiency, such as the sale of its handset processor business to Marvell and the elimination of 1,000 management positions. Intel said most of this year's cuts would come in management, marketing and information technology. Next year's cuts will be more broadly based, Intel said, as the company works to improve labor efficiency in manufacturing, equipment utilization, and product design methods and processes, as well as eliminates operational redundancies.

Analysts believe that additional changes may be on the way. Tim Luke, managing director at Lehman Brothers, said that he expects the company may sell its NOR flash division. But in spite of Intel's positive moves to improve its efficiency, doubts remain.

"While encouraged by cost cuts, new products and possible disposals [of inefficient business units and the jobs associated with them], we remain concerned on inventory levels, possible write-downs and by fierce share pressure and gains at Dell and others by rival AMD," Luke said.

Intel said in its statement announcing the restructuring that it expects to generate savings in costs and operating expenses of $2 billion in 2007. Then, in 2008, it expects savings from the restructuring to grow to about $3 billion annually.

The Santa Clara, Calif.-based company said that the savings are a combination of non-workforce related steps and the significant reduction in Intel's workforce. In addition to savings from the workforce reduction, Intel said it expects savings in merchandising expenses, capital and materials.

"These actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come," said Paul Otellini, Intel president and CEO, in a statement.

Intel expects to achieve a capital expenditure avoidance of $1 billion by better utilizing manufacturing equipment and space. The company expects that approximately 25 percent of the project's savings in 2007 will reduce cost of sales, and the rest will reduce operating expenses.

Intel expects severance costs to total approximately $200 million, offsetting some of the expected savings from the project's implementation.