Intel layoffs: Questions and answers on pending job cuts

April 25, 201611:57 am1628 views
Intel layoffs: Questions and answers on pending job cuts
job cuts 1 / 5 Intel employs 19,500 in Oregon, more than any other business in the state and more than anywhere the company operates. (Photo by Randy L. Rasmussen/The Oregonian)

Intel confirmed Tuesday it’s eliminating 12,000 jobs, beginning immediately. That’s among the biggest overhauls in company history, designed to prepare Intel for a long-term decline in personal computers and for growth in sales to data centers and small, connected gadgets.

Here are some questions and answers about the job cuts and the future of the company.

How will the job cuts work?

Intel will give some employees the option of taking a voluntary buyout, either because they’ve been with the company for a very long time or because they’ve been a poor performer in recent years. Those employees will be notified by April 25.

Others face layoffs.

Internal communication obtained by The Oregonian/OregonLive indicated employees will know by April 25 if a site is scheduled for closure, and by April 29 if they’re slated for layoffs. Within another 60 days, Intel suggested it will have made decisions about project cancellations.

Intel says it expects the restructuring to be complete by the middle of 2017.

Will employees get severance?

Employees will typically receive at least eight weeks of severance. Long-term employees who qualify for an early retirement program can get a year of pay.

Who will get laid off?

Beyond indicating that it’s de-emphasizing PCs, Intel hasn’t said which product groups are in trouble. A smaller layoff last year fell heavily on older workers.

Intel chief executive Brian Krzanich told employees Tuesday the company isn’t closing any manufacturing sites and won’t leave its aging facility in New Mexico, according to internal communication described to The Oregonian.

Internal documents indicate workers will qualify for layoff if they receive a substandard rating in Intel’s rigorous annual review process, called Focal, or receive lower performance-based stock grants through that program. Intel used similar criteria for a smaller layoff last year, causing deep unhappiness among some employees who said they didn’t realize their stock grants could affect their employment status.

What does this mean for Oregon?

Intel won’t say, but the company is Oregon’s largest private employer and pays some of the state’s best wages. (A 2012 Intel report pegged its average Oregon wage at $170,000. Update: 2015 Oregon employment data posted Friday by the state shows that the average wage across Oregon’s entire semiconductor industry is $138,487, including bonuses — 4.7 percent of all wages paid in the state, and nearly three times the average private sector wage.) So the effect of any substantial layoffs could be profound.

The company’s Oregon headcount has climbed 5 percent in the past year, to 19,500. Eliminating 11 percent of those jobs would put 2,150 out of work and reduce Intel’s Oregon work force to where it was in early 2014.

Oregon may in some ways be insulated from the cuts, because it’s both Intel’s largest and its most important site. The company’s research factories at its Ronler Acres campus in Hillsboro are indispensable to its technology development.

On the other hand, laws in other countries – Europe, in particular – restrict the ability of large employers to lay off large number of workers. So the 11 percent reduction may fall disproportionately on sites in the United States and other places that offer workers fewer protections. (Roughly half of Intel’s total work force is in the United States. One-sixth of its employees work in Oregon.)

Oregon’s broader economy is as strong as it’s ever been, with unemployment at a historic low of 4.5 percent. There’s never a good time for large-scale layoffs, but the state is better positioned to withstand the setback than it has been in the past.

Workers who lose their jobs may struggle to find comparable work. Oregon has few other large, corporate employers, Intel’s engineering skills are highly specialized, and Intel-scale wages are hard to come by.

Intel got a big tax break in 2014, exempting $100 billion in equipment from property taxes over 30 years. If it cuts Oregon jobs, does it have to give any of that money back?

Intel’s deal, like similar deals it signed previously, provides no job guarantees. But those tax exemptions are worthless if Intel doesn’t continue investing in Oregon, buying equipment and installing it in factories here.

In the past, those investments have come along with a lot of hiring – most of it off the factory floor, as Intel hired researchers to engineer new generations of microprocessors and for various administrative and managerial roles.

These are steep cuts. Is Intel’s business in trouble?

Intel is a remarkably profitable company, boasting gross profit margins of more than 60 percent. It said Tuesday it expects revenues to grow 5 percent to more than $58 billion, an all-time high.

So no, Intel’s business is not in trouble.

Not yet.

Intel faces a looming problem: It spends several billion dollars every year to equipment its chip factories with production tools that turn out the latest and most advanced microprocessors. It’s offset those costs by selling the processors for PCs and laptops, a market that provides more than 60 percent of Intel’s sales.

With PC sales in decline, Intel needs to find a new way to pay for its factories – or else cut its costs.

Tuesday’s layoffs accomplish both things: Intel said the cutbacks will enable it to invest in data centers and new technologies, such as wearable computers. And they reduce Intel’s costs, which boosts its profit margins. Chief executive Brian Krzanich said Intel expects its highest revenue per employee in its history following the layoffs.

There’s another issue, too: Moore’s Law, the maxim that predicts exponential growth in computing power, is slowing down as computer chip circuitry shrinks. It’s taking longer for Intel to craft new generations of microprocessor technology, and it’s getting more time consuming and expensive to manufacturing each new generation of chips.

Why is the PC market hurting so badly?

Much of what people want to do online – read the news, text with friends, check social media – can be done as well or better on a smartphone than on a PC. PCs are still nearly ubiquitous, of course, in homes and offices, but people feel less need to upgrade – and neither Intel’s processors nor software makers like Microsoft, have provided compelling enough new products to change that dynamic.

Smartphones are doing great. Why isn’t Intel benefitting?

Intel processors aren’t in the iPhone and aren’t in most Android-based phones, either. Nearly all of those use customizable designs from rival ARM Holdings.

Intel was slow to recognize that device manufacturers were beginning to care more about energy efficiency than computing horsepower and was inflexible on enabling customized designs for smartphones.

The company has spent nearly a decade to catch up, with little to show for it, and with the smartphone growth peaking Intel may be close to giving up. Its restructuring announcement Tuesday did not mention phones at all.

Intel does make wireless modems for smartphones and there is speculation Intel may find a place in some of the new iPhones due this fall. That won’t come close to compensating for Intel’s shortcomings in mobile processors, though.

PCs are falling apart. Moore’s Law is slowing down. Intel is shut out of smartphones. Is anything going right?

Remember, Intel is a hugely profitable company – and a growing one.

Intel says it has a breakthrough memory chip technology, developed in partnership with Micron. And its Internet of Things group – a broad category that includes connected appliances, wearable computers and other online gadgets – grew 22 percent last quarter (though it’s still a relatively small market, generating just $651 million in quarterly sales).

Intel’s brightest market is data centers, huge arrays of computers that house emails, photos, online video and corporate data. Data center chips generated $4 billion in revenue last quarter for Intel, up 9 percent from the year before.

Even there, though, there’s cause for concern. Intel has targeted 15 percent long-term growth in the data center market but has struggled to hit that target in recent months. And data centers may eventually migrate some of their systems off of Intel chips, bringing competitive pressure to a market where Intel now holds a near monopoly.

— Mike Rogoway

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