Intel announces broad restructuring
Intel says it will restructure company and focus on re-gaining lost market share in a tough environment.
NEW YORK (CNNMoney.com) - Faced with slowing PC growth and increasingly tough competition, Intel chief executive Paul Otellini said the company will undergo a broad restructuring that will address all aspects of the company's business.
Otellini said Intel (up $0.33 to $19.82, Research) will conduct a 90-day review of its businesses to see what areas need to be revamped before taking any action and said the company will reveal more details in the third quarter of this year. He also said the company will cut $1 billion in spending in 2006 but did not comment on whether the company will lay off workers as part of the plan. Otellini made the remarks at the company's spring analyst meeting, held in New York on Thursday.
Otellini said the company's objective is to "re-structure, re-size and re-purpose Intel for the future," adding that all parts of the business are included.
"We are well aware of the realities of our current and future business," Otellini said.
The stock was up 2.2 percent in afternoon trading.
"We took a billion out of what we planned to spend this year. We cut capital. We are starting a detailed review of all the businesses that have been losers with a much tougher eye than we have before," said Intel chief financial officer Andy Bryant.
The moves are part of a plan to get the No. 1 maker of processors for PCs back on track after months of financial struggles and increased competition. Shares of Intel have slid 12.5 percent in the past 12 months as the company has continued to lower sales guidance and has lost market share to rival AMD, particularly in the market for server chips used to run business networks.
The company unveiled a plan to regain lost market share, launch several new processors and trim down inventory in an effort to regain investors' confidence. But management also acknowledged slowing growth in the PC market. Earlier this month, Intel reported a 38 percent drop in its first quarter earnings and slashed its 2006 forecast from 6 percent to 9 percent revenue growth down to a 3 percent decline. Otellini reiterated that forecast today.
Intel executives outlined the two main problems the company has faced since the start of 2005: Market share losses and inventory problems. Throughout their remarks, Intel's executives repeatedly stressed the need to regain market share, without mentioning competitors by name.
Over the past year, AMD (Research) has boosted its overall share of the chip market to 21.4 percent versus Intel's 76.9 percent as of the end of 2005, according to industry tracker Mercury Research. That's the first time AMD has cracked the 20 percent mark since 2001, and it is up from 16.6 percent in the fourth quarter of 2004 -- at the expense of Intel.
Intel grappled with limited supplies of chipsets -- pairs of chips that surround each microprocessor -- throughout 2005. That resulted in above-normal customer inventory levels that are limiting demand in the short term, the company said on its most recent quarterly conference call with analysts.
Focusing on market share
But today, Intel executives reiterated the confidence they expressed on their most recent quarterly earnings call that inventories would return to more normal levels in the second half of the year. They also expressed optimism that the company will regain lost market share in key areas.
Otellini also unveiled a timeline for shipments of three new processors, including its new Woodcrest server processor.
Otellini said Woodcrest will be shipping in June, while its Conroe processor for desktops will ship in July. Its new Merom processor for laptops will ship in August.
"We wanted to get performance in the market place in servers first, where we need it most," Otellini said. He noted that it is debuting Conroe in time to refresh desktops for the critical holiday selling season.
"For the first half of this year, we are focused on clearing out inventory and ramping our new products," said Otellini. "We absolutely focused on winning back market share."
He added that the company will refresh two of its platforms, the Viiv brand for digital entertainment PCs and the Centrino chip, targeted to laptops for wireless access.
Otellini said he expects the company's Viiv platform, which aims to turn the consumer PC into a hub of digital entertainment for the living room and which launched in January, to generate $1 billion in revenues in its first 12 months.
He made the same prediction for the company's newest brand, vPro, which is expected to launch in the third quarter. Intel unveiled vPro on Monday. VPro PCs processors and related hardware are for corporate customers and will be configured to make it easier to fix, update remotely and guard against viruses and other security threats, according to reports.
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