Intel Corporation Is Slashing Jobs After Reducing Revenue Outlook

The Oregonian reports that it has obtained a copy of an internal Intel (INTC +0.00%) memo that indicates layoffs are coming to the chipmaker.

Intel reportedly "finalized a list of affected employees on May 29" and is going to be spending the next few weeks training managers "on how to notify laid off workers." The memo reportedly says that Intel determined which workers will be affected via a "rigorous annual review process" as well as "other performance evaluations."

The reason for these cuts? The company said in the memo that Intel needs to "reduce overall spending for the second half of the year." The Oregonian says Intel wants to "keep expenses flat to match the company's reduced revenue outlook for 2015."

Different from last year's "layoffs"
I cannot help but remember a similar story breaking in January 2014, when it was reported that Intel planned to cut over 5,000 jobs. Last time, though, it was not a "layoff" per se -- at least according to a statement Intel's Chris Kraeuter made to CNN at the time.

"It's not a giant, one-time action. This is a target employment rate for the end of the year," Kraeuter said.

This time, the report clearly states that Intel has come up with a list of folks whose positions they plan to terminate. Additionally, the report makes it clear that the cuts will begin on June 15 and end "one month later."

That, unlike the 2014 headcount reduction, sounds like a "giant, one-time action" to me.

Where are the cuts going to come from?
The memo reportedly said "employee reductions will vary by business group." The question, then, is what areas will Intel likely target with these cuts? I have no special knowledge of the situation, but I can make some educated guesses based on what I would do if I were in the shoes of Intel management.

The data center group is growing very nicely, and the division continues to execute on delivering competitive products. I believe Intel is unlikely to cut significantly in this division, and in fact, I would not be surprised if by the end of the year, the headcount in that division is actually up.

Intel has also cited strength in its non-volatile memory and Internet of Things business units, so those seem relatively safe as well.

Where I would imagine the bulk of the cuts are going to come from are the client computing group and, potentially, the relatively new foundry group.

The client computing group consists of the PC group -- which CEO Brian Krzanich recently claimed will be "flat to slightly down" over the long-term -- as well as the mobile processor group, which has been losing more than $3 billion per year over the last several years.

My guess is that Intel will want to optimize its PC division for maximum profitability given the weak long-term growth prospects for that business. Intel needs to continue investing in mobile for the long-term, but given the company's partnerships with Rockchip and Spreadtrum, I would not be surprised to see Intel reduce its headcount here.

Intel's foundry group has been around since 2010, but it has generated no material revenue. Intel recently announced its intent to acquire its highest-profile foundry customer, Altera, and its other customers are not likely to contribute significant revenues once Intel starts selling them wafers.

Intel does not currently break out its foundry business, but spending is probably significant. Unless Intel has some great foundry deals coming at the 10-nanometer generation, this might also be an area where Intel should cut back its investments to improve overall corporate profitability.