Alongside first-quarter earnings, chip giant Intel (NASDAQ:INTC) has announced that it will be implementing a "restructuring initiative" intended to help its transition away from being a "PC company." The company intends to focus on new areas of growth, specifically its data center and Internet of Things (IoT) businesses, which comprise 40% of sales.
The restructuring will lay off upwards of 12,000 employees globally by mid-2017, which represents 11% of its total headcount. This should translate into $750 million in savings for 2016, and annual savings of $1.4 billion by the middle of next year. Intel will incur a $1.2 billion one-time charge associated with the layoffs.
Does it matter?
Intel has long been a victim of the "death of the PC" storyline that's been slowly playing out for years. While "death" may be a bit dramatic, the PC market has been stagnating for quite some time, since it's a very mature global market at this point and it transitioned from the adoption phase to the upgrade phase a long time ago. PC upgrade cycles have been decelerating for just as long, so it makes sense to divert resources away from PC processors while trying to distance itself from the "death of the PC" narrative.
It also turned out that Intel missed out on mobile due to a number of strategic missteps over the years. Meanwhile, Intel's data center business has been thriving alongside broader trends in cloud computing. The company is now getting into IoT and sees a lot of opportunities where its solutions can facilitate greater connectivity across devices.
Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.