Intel To Lay Off 12000 Employees

On Tuesday, April 19th Intel (NASDAQ: INTC) announced that it would cut nearly 11% of its workforce, giving the pink slip to up-to 12,000 employees. In a memo to employees, Intel’s CEO, Brain Krzanich cited the cause of the restructuring as a strategic move from making microchips that power PC computers to one that focuses on computing devices for data centers, internet of things businesses, and cloud based computing applications. The global restructuring will take place on a global scale and while most of the layoffs will occur by the end of July 2016, some cuts are expected to span into 2017.

This bold and massive layoff comes on the heels of other large layoffs by tech giants Microsoft, HP, and Qualcomm in 2015. All four technology companies have drawn fire for these layoffs while almost simultaneously lobbing congress for more H1-B visas that would allow them to hire more foreign works. In 2013, Intel’s government affairs managers were quoted as saying they could not find enough homegrown workers with the technical chops to meet their needs.

So is the lay off part of a well planned and strategic initiative to focus on the most profitable part of the business or something else? After all, in 2015 Intel reported earning $55.36 billion in revenue. Ashraf Eassa, a technology specialist with The Motley Fool, says the answer may lie in an effort to reduce the company’s operating expenses: “over the last five years, Intel’s revenue has grown just under $1.5 billion but operating expenses soared by $4 billion – clearly a problem for the company’s bottom line.”

In California

With such a drastic cut into the headcount at Intel, the affects will indeed be nationwide especially on the East coast in Oregon and California where Intel is a significant job producer. Intel has been one of greater Sacramento’s largest employers. Intel’s Folsom research lab will shed 269 jobs alone, and an additional 296 jobs will be eliminated in another six different locations in Santa Clara according to a recent Employment Development Department filing.

What about the Affected Workers?

Regardless of the reasons, a large swath of Intel’ers will be packing up their belongings in the infamous cardboard box and leaving work for the last time within the next two months. On the bright side, Kzranich has committed to “helping employees through this transition and will do so with the utmost dignity and respect”, and Intel has provided documentation that indicates Intel will provide contract buyouts, an early retirement program for eligible employees. When layoffs begin on Monday morning, April 25th, 2015 those qualifying for the enhanced retirement will receive a year of base pay and one year’s performance bonus in addition to two years of medical coverage. For those that will simply be laid off, voluntarily separated, or who have their projects cancelled, the following will apply: A minimum of 8 weeks of base pay and some bonus pay. These employees also get a choice of six months of medical coverage and $9,000 in cash, or a full year of medical coverage. Additionally, Intel indicates it will offer:

o 7 weeks of pay for employees who have been with the company for 4 years
o 15 weeks of pay for employees who have been with the company 10 years
o 30 weeks of pay for employees who have been with the company for 20 years

What about the Stock Holders?

The cuts would represent a decrease in research and development, never a good thing for a technology company whose competitive advantage lies in producing the most cutting edge and innovative products. However, once the layoff is fully realized, the company expects to save around $1.4 billion dollars annually. It’s most likely that Intel hopes that the reduce operating expenses combined with more effective management focused on customer satisfaction and product execution will be able to bolster earning in the medium to long term. In other words, it could take several years to realize the stock holder benefits of the reorganization.

Looking Forward

While Intel has announced that the affects will be company wide, it doesn’t bode well for the state of Oregon where almost 20,000 of the company’s 108,000 workers are based. Full on site closures should be fully announced by April 25, while those that work in manufacturing sites won’t have to worry about this as the CEO mentioned that it won’t be closing any of these. Workers will also know within the next 60 days if their projects will remain or be cancelled. Overall, chip manufactures are doing well so it’s reasonable to assume that the affected employees will be hired on at other tech companies relatively quickly.