Intel cuts 12,000 jobs as it bets on IoT, data center over PCs

Intel is shedding costs in hopes that it can focus more on growth businesses and less on the PC.
Written by Larry Dignan, Contributor

Intel said it is cutting 11 percent of its workforce, or 12,000 jobs, as it revamps to focus on areas such as data center and the Internet of things.

The chip giant said that the restructuring will be completed in mid-2017 and result in a $1.2 billion charge in the second quarter. Intel expects to save $750 million this year and $1.4 billion a year by mid-2017.

With the move, it's clear Intel is trying to become less dependent on PCs and focus more on enterprise infrastructure. Intel ended the first quarter with 112,000 employees.

In an email to employees, CEO Brian Krzanich said:

We expect that this initiative will result in the reduction of up to 12,000 positions globally. This will be achieved by voluntary and involuntary departures, global site consolidation, and efficiency initiatives. The majority of these actions will be communicated over the next 60 days, with some spanning into 2017.

These are not changes I take lightly. We are saying goodbye to colleagues who have played an important role in Intel's success. We are deeply committed to helping our employees through this transition and will do so with the utmost dignity and respect.

Today's announcement is about accelerating our growth strategy. And it's about driving long-term change to further establish Intel as the leader for the smart, connected world.

As we drive this transformation, there is an extraordinary opportunity ahead. We will emerge as a more productive company with broader reach, and sharper execution.

Intel's restructuring comes amid first quarter sales that fell short of expectations.

The company reported first quarter earnings of $2 billion, or 42 cents a share, on revenue of $13.7 billion. Non-GAAP earnings for the quarter were 54 cents a share.

Wall Street was looking for first quarter earnings of 48 cents a share on revenue of $13.83 billion.

Along with earnings, Intel said that CFO Stacy Smith will leave his post to focus on leading sales, manufacturing and operations. Intel is looking for Smith's replacement.

Intel's results highlight why it is trying to restructure its way to growth. The company's client computing group delivered revenue of $7.5 billion, up 2 percent from a year ago. The data center unit delivered first quarter revenue of $4 billion, up 9 percent from a year ago. Intel's Internet of things sales were $651 million, up 22 percent from a year ago.

Smith said:

We are seeing growth in Data Center, Internet of Things, Security, and Programmable Solutions (formally Altera) groups, which all helped offset a weak PC market.

As for the outlook, Intel projected revenue of $13.5 billion, give or take $500 million, in the second quarter with gross margins of about 61 percent. For 2016, Intel sees revenue up mid-single digits, which is down from the mid- to high-single digit growth guidance before. For the year, gross margin will be about 62 percent.

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