Intel Announces Massive Layoffs, Restructure away from PC

Adrian Ip
Posted Apr 20, 2016
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Intel yesterday announced a massive restructuring plan. The restructure covers several different areas but the main points are:

  • 12,000 staff facing redundancy worldwide.
  • Mix of voluntary and involuntary layoffs.
  • Site consolidation to take place.
  • This comprises approximately 11% of Intel’s global workforce.
  • Lowered revenue forecast for this year.
  • CFO Stacy Smith who has served as Executive VP and CFO since 2012 will take a new senior executive position leading Sale, Manufacturing and Operations once a successor is in place.
  • Data centre, Internet of Things, memory and FPGAs the key focus areas for the future.
  • All mentions of PC in the press release are vaguely negative.

Negative on PC

Intel CEO Brian Krzanich sent out an email to all employees explaining the situation and that since he became CEO almost 3 years ago, he’s been working to “transform our company from a PC company to a company that powers the cloud and billions of smart, connected computing devices”.

He goes on to say that those areas, combined with memory and FPGAs “delivered $2.2 billion in revenue growth last year, made up 40% of our revenue and the majority of our operating profit”.

He then continues to explain that with this being the case, they are announcing the restructure effort.

So the message is clear, Intel is doubling down on what it sees as its growth areas and adjusting forecasts to fit with its expectations of the new normal.

Although in after hours trading its share price was down, today it has rebounded and is up about 1.25% after the announcement, so the market clearly likes it.

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Financial Impact

The restructure isn’t without a cost burden to Intel. In their SEC filing they anticipate a one time pre-tax charge of approximately $1.4 billion once the implementation restructure is completed by Q2 2017.

The majority of the cost is expected to be incurred from employee severance packages which are expected to mostly be dealt with in the next 60 days although some will take into 2017. Additionally, there are also likely to be some costs associated with the closure of some facilities, but this has not yet been detailed.

Intel is expecting the restructuring to give them $750 million in savings this year with an annualised run rate saving approximately $1.4 billion by mid-2017.

Bottom to fall out of the PC market

Stacy Smith (current CFO) said that Intel now expects the PC market to decline by a high single digits percentage in 2016 compared to previous forecasts of a mid single digit percentage decrease.

CEO Brian Krzanich also said that slowdowns in China and other emerging markets are also leading to larger than expected reductions.

Forward Guidance Downgraded

Intel have also updated their full year outlook with the headlines being:

  • Revenue is expected to be up in the mid-single digits, down from prior outlook of mid to high single digits.
  • Non-GAAP gross margin is expected to be 62% with a 2% margin of error down from a 63% with 2% margin of error.

Final Thoughts

The market has responded well to Intel’s restructuring effort despite an initial drop in after hours trading last night, today INTC stock closed a few minutes ago up 1.27% at $32 even.

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Even so, there are concerns that the restructure is about an Intel problem as opposed to a market problem. Intel stock is down this year while the broader PHLX SOX semiconductor index is marginally up and questions remain about the company’s ability to compete with the ARM based chips most of us have in our mobile phones these days.

That much said, analyst expectation is leaning fairly heavily on the buy or hold side of the spectrum. However it shakes out, we should have a clear idea of if things went to plan in a year or so.

Sources:

Intel Press Release

Intel filing

Brian Krzanich’s email to employees

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