Intel to cut 10,500 jobs
World's largest chipmaker announces plan to reduce workforce by 10%; expects to save $5 billion over two years.
By Grace Wong, staff writer

NEW YORK ( -- Intel Corp. raised its job cut target to 10,500 jobs, or about 10 percent of its workforce, on Tuesday as it aims to fight off fierce competition from rival AMD.

Intel, the world's largest chipmaker, said it would eliminate 7,500 jobs by the end of this year and another 3,000 jobs by the middle of 2007.

Intel shares (blue) have tumbled about 20 percent in the last year, while shares of AMD (yellow) have soared about 24 percent in the same period.
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The reductions include some previously announced cuts, including the layoffs of 1,000 managers made in July and reductions related to the sale of its communications and media businesses.

Shares of Intel (Charts) fell about 1 percent in extended trade on the widely expected move, which was announced after market close.

Investors were looking to see how aggressive Intel would be with the cuts, Suji de Silva, an analyst with Cathay Financial, said. It was a big cut, but was viewed as more moderate than aggressive, he said.

This year's cuts will impact management, marketing and IT divisions, while next year's reductions will be more broad-based.

Intel spokesman Chuck Mulloy said the company has not yet decided on the geographic breakdown of the cuts.

The company said it expects to save about $2 billion next year. Cost savings are expected to grow to $3 billion annually in 2008.

"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," chief executive Paul Otellini said in a statement.

Big battle over microchips

The No. 1 maker of processors for PCs has been locked in a heated fight with its smaller rival AMD (Charts), which has been gaining market share, especially in server chips used to run business networks. Intel also has been struggling with overall weak demand for PCs.

In the second quarter, AMD increased its share of the chip market to 21.6 percent, up from 16.2 percent in the year-ago period, according to industry tracker Mercury Research. That gain has come largely at the expense of Intel, whose share fell to 72.9 percent in the second quarter.

Shares of Santa Clara, Calif.-based Intel have tumbled about 20 percent in the last year, due to slumping sales and rising costs related to its battle with AMD.

Improving efficiency and cutting costs are important, but ultimately Intel's competitiveness boils down to its product line, Cody Acree, an analyst at Stifel Nicolaus, said.

Intel launched a line of new "dual core" processors for desktops, notebooks and servers this summer, which has been well received, analysts said. A dual-core chip is essentially one processor with two brains.

"A lot of Intel's potential market share gains will come as these products become a bigger piece of the market," Acree said.

Analysts expect Intel to post earnings of 17 cents a share and revenue of $8.6 billion when it reports results for the current quarter on Oct. 17, according to earnings tracker Thomson First Call.

None of the analysts quoted in this story own shares of Intel. Stifel Nicolaus has a non-investment banking relationship with the company.

Layoffs loom.... How safe are you?

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