MANHASSET, N.Y. Intel finally let the cat out of the bag, confirming what for the past few months has been a poorly-kept secret: The troubled semiconductor supplier will cut 10,500 jobs in coming months.
Now the real scratching begins. Who at Intel will be left standing when the ax falls? And what will the organization's structure look like a year from now after the cuts are completed?
The coming months will be a time of high anxiety for Intel's 100,000 or so employees. While the initial reductions aim at streamlining management, marketing, and information technology functions, Intel said it would undergo more broad-based reductions in 2007 to achieve more efficient use of manufacturing and equipment, eliminate organizational redundancies, and improve product design.
Here's a strong hint that more bad news is coming: Intel hopes to save $1 billion in capital expenditures through better utilization of manufacturing equipment and space. The company has been slashing capital expenditures as dismal news of its financial performance emerges.
As one of few U.S companies to operate domestic semiconductors fabs, a key issue is likely to be what happens to some of Intel's U.S. plants? The company has invested heavily in 300-mm fabs producing 65-nm microprocessors in locations such as Chandler, Ariz., and was considering expanding its Oregon wafer fabs.
While it appears unlikely Intel would close any of its 300-mm fabs, job cuts at some of these facilities are not out of the question. And what happens to Intel's 200-mm U.S. fabs? Would Intel look to consolidate those facilities?
As part of its cost-cutting initiatives, Intel will likely look harder at locating in low-cost locations such as India, where the company has been wavering about setting up a back-end test and assembly plant.
Intel is likely to continue wielding the ax on operations it deems poor performers or outside it core business. The company has already sold its Xscale business to Marvell Technology and has agreed to sell its media and signaling business to Eicon Networks Corp.
One also wonders whether the cuts will affect Intel's ability to develop leading-edge products, if the company decides to push out or shelve some advanced product development to focus on generating profits from its existing products. Here, Intel is playing with fire. Rival AMD, despite some recent stumbling of its own, continues to gain ground, particularly in the desktop and server processor market.
One also wonders about the mood among Intel's employees as they await news of their fate. How manyincluding some highly creative and skilled workerswill bolt instead of waiting for the ax to fall? Could the long-time technological leader lose its best and brightest through the cuts? How will that affect Intel's ability to compete over the long haul in a cutthroat global technology market?
News of Intel's job cuts is likely to trigger a short-term renewal of confidence among analysts and investors hopeful the microprocessor giant will reverse its long slide. However, the coming months are likely to be more painful for Intel as well as the rest of the electronics industry.