In a widely expected move, Intel (NASDAQ:INTC) announced late yesterday afternoon that it would be eliminating nearly 11,000 jobs (about 10% of its workforce) by mid-2007.
The move, while obviously painful for the employees and their families, was a necessary step. To begin, the job eliminations are expected to save $5 billion over the next two years. They should also make Intel more efficient, help improve its sagging margins, and provide further strategic focus to the company.
As of late, the company has been suffering greatly at the hands of Advanced Micro Devices (NASDAQ:AMD), which in addition to gaining serious market share with its widely praised Opteron and Athlon 64 chips, was also able to secure a deal with Dell (NASDAQ:DELL) earlier this year, to provide it with a growing number of processors for its servers.
Intel CEO Paul Otellini had already been acting to halt steadily eroding market share and declining profits. (You might recall the company posted a 56% drop in net profits in the second quarter of 2006.) In July, the Santa Clara-based chip maker unloaded 1,400 workers when it sold its communication chip business to Marvell Technology Group (NASDAQ:MRVL) for $600 million, and it eliminated another 600 positions when it sold its telecommunication chip business to Eicon Networks in August.
This latest action, however, is Otellini's biggest swing of the ax and will likely produce the largest dividends. In many ways, I liken it to the actions of Hewlett-Packard (NYSE:HPQ) CEO Mark Hurd, who has cut more than 14,500 jobs since taking over the helm in March of 2005, and managed to increase HP's stock price by more than 50%.
As I said earlier, the massive downsizing is unfortunate for the Intel employees who will lose their jobs, but the best way for Intel to get back in the game is to chip away at its workforce.
Interested in other chip-related Foolishness? Check out these recent articles:
Intel and Dell are both Motley Fool Inside Value recommendations. Can't bear to invest without a nice, hefty margin of safety? Let Inside Value guide you to the market's best bargains. Best of all, you can try it free for 30 days.
Fool contributor Jack Uldrich owns stock in Intel. The Fool has a chip-proof disclosure policy.
