Ireland escapes brunt of Intel job cuts

5 Sep 2006

Intel has confirmed that it is to cut 10,500 jobs – some 10pc of its global workforce – as part of a major restructuring plan. However, it became clear that the majority of the jobs to be cut are in marketing and services roles and that the company’s 5,500-strong workforce in Kildare will emerge largely unscathed from the restructure.

In eagerly awaited news Intel chief executive Paul Otellini (pictured) announced from California that the company intends to reap cost savings of US$2bn in 2007 and US$3bn in 2008 as a result of the cuts.

The news of a possible restructure emerged last Friday following a 90-day review of the company’s operations. The internal review process began in April after Intel forecast its first sales decrease in five years, losing sales to Advance Micro Devices.

Second quarter earnings plummeted 57pc and revenues fell 13pc due to weaker demand for Intel’s microprocessors. In July Intel said it would cut 1,000 managers worldwide. Globally the company employs 99,000 people.

In a statement Intel said that the company’s employee population will decline to approximately 95,000 by the end of this year, resulting from workforce reductions, attrition and previously announced actions.

The workforce will decline to approximately 92,000 by the middle of 2007 – 10,500 fewer than the company’s employee population at the end of the second quarter of 2006. In addition to the savings from the workforce reduction, the company expects savings in merchandising expenses, capital and materials.

“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,” said Otellini.

The company confirmed that most job reductions this year will occur in management, marketing and information technology functions, reductions related to the previously announced sale of businesses, and attrition.

In 2007, the reductions will be more broadly based as Intel improves labour efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and improves product design methods and processes.

In 2008, the company said it expects the cost and operating expense savings from this restructuring to grow to approximately US$3bn as it achieves the full-year run rate on the projects implemented in 2007.

In addition, Intel expects to achieve a capital expenditure avoidance of US$1bn by better utilising manufacturing equipment and space. The company expects that approximately 25pc of the project’s savings in 2007 will reduce cost of sales, and the rest will reduce operating expenses.

The company expects severance costs to total approximately US$200m, offsetting some of the expected savings from the project’s implementation.

Intel’s next earnings statement is due to be made on 17 October next.

Intel is Ireland’s largest employer and is a flagship investment project for the country. As a result news of the impact the restructure is likely to make was eagerly awaited.

The company operates two wafer fabrication facilities in Leixlip, Co Kildare, Fab-10 and Fab-24, as well as an R&D operation in Shannon. Representing an investment in excess of US$2bn, Fab-24 was opened in June this year and is said to be one of the most advanced high-volume semiconductor manufacturing plants in the world building multi-core microprocessors, along with Intel’s Fab 12 in Arizona and D1D Fab in Oregon.

By John Kennedy