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The Honolulu Advertiser
Posted on: Wednesday, September 6, 2006

Slumping Intel cutting 10,500 jobs

By Chris Gaither
Los Angeles Times

Workers at Intel Corp. put on clean suits before working on chip manufacturing at company headquarters in Santa Clara, Calif.

PAUL SAKUMA | Associated Press

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SAN FRANCISCO Intel Corp. said yesterday it would cut 10,500 jobs more than 10 percent of its work force by the middle of next year as the Silicon Valley heavyweight trims down to fight smaller, nimbler rivals.

The cuts accelerate the company's most significant restructuring in two decades and are intended to refocus Intel on its primary business of making computer chips. As Intel diversified in recent years into new products, it saw its core market eroded by rivals such as Advanced Micro Devices Inc.

Intel Chief Executive Paul Otellini said the company expects to reduce operating costs by $2 billion in 2007 and by $3 billion in 2008. Despite the job reductions aimed primarily at management, marketing and information technology positions Intel will have about 10,000 more workers than it did at the end of 2003, when the company rapidly ramped up hiring.

"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," Otellini said in a statement. Intel executives declined to comment further on the restructuring or to forecast how the changes might affect third-quarter earnings.

With the restructuring, analysts said, the Santa Clara, Calif., company made its biggest concession yet that the well-known "Intel Inside" marketing slogan can only take it so far in fending off competition. Significantly, Intel made no mention of cuts in its research and development department a sign analysts interpreted as reinforcing the company's commitment to regaining technical dominance.

Although AMD has made significant inroads and won fans for its innovation, Intel chips still power about 80 percent of the world's personal computers.

"What we're seeing is one of the leaders in the industry taking a closer look at making sure its efforts are focused on delivering the most value and innovation," said Nucleus Research analyst Rebecca Wettemann. "This is probably a natural correction at this point."

Intel shares gained 11 cents to $19.99 before the company announced the widely anticipated cuts. They fell 26 cents in after-hours trading following the disclosure. Some analysts had predicted Intel might cut as many as 20,000 positions to further trim what they considered an oversized staff.

Beginning in 2004, the company hired furiously and grew by nearly 30 percent as it tried to broaden its focus.

But sales and profits have slumped this year, as AMD stepped up a price war and continued to take market share in Intel's core markets: PC and server chips. In July Intel reported its sharpest quarterly profit drop in more than four years.

"Intel has too many poorly focused science projects for a company with so many competitive problems," Merrill Lynch's Joe Osha wrote in a research report yesterday.

Long a specialist in semiconductors, Intel has tried to reshape itself as a developer of "platforms," or packages of chips and related technology aimed at particular customers including Centrino for wireless computing and Viiv for home multimedia.

In April, it announced a top-to-bottom study of the company's structure and said it would announce major changes by the end of September. The company has since said it would sell its communications business to Marvell Technology Group, and its media and signaling business to Eicon Networks Corp., of Canada.

Intel plans to reduce its headcount by 7,500 this year and 3,000 in 2007.

Company spokesman Chuck Mulloy said 5,000 of those job cuts have already occurred or are about to: 2,000 workers have retired or otherwise left voluntarily since July 1; another 2,000 were in the business units being sold to Marvell and Eicon, and 1,000 were let go as part of a recently announced cut of managers.

Mulloy said the remaining cuts will be spread across various geographic regions.