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Intel To Cut 11% Of Workforce: What Does That Mean for Channel?

Job cuts

News that Intel will shed 12,000 jobs by mid-2017 through a mix of voluntary and involuntary departures shouldn’t come as a surprise. The stated reason – that Intel is looking to pivot from a PC company to one that powers the cloud and the Internet of Things – reflects the reality that it has failed to make a splash in mobile, and that PC sales are down and likely to remain that way.

How far down? IDC reported in January that PC makers shipped 276.2 million units in 2015, a dropoff of 10.4 percent and the first time shipments have fallen below 300 million units since 2008.

Intel is still healthy, with announced first-quarter earnings that came in ahead of expectations. The company brought in $2 billion, or 42 cents a share, on revenue of $13.8 billion, up from $12.8 billion in Q115. Intel expects the job cuts to deliver $750 million in savings this year and annual run-rate savings of $1.4 billion by mid-2017. {ad}

Besides IoT, a bright spot for the company is the Intel Security group, which delivers software products to secure computers, mobile devices and networks. Here’s a revenue breakdown that tells the tale:

  • Client Computing Group revenue of $7.5 billion, down 14 percent sequentially and up 2 percent year-over-year
  • Data Center Group revenue of $4.0 billion, down 7 percent sequentially and up 9 percent year-over-year
  • Internet of Things Group revenue of $651 million, up 4 percent sequentially and up 22 percent year-over-year
  • Non-Volatile Memory Solutions Group revenue of $557 million, down 15 percent sequentially and down 6 percent year-over-year
  • Intel Security Group revenue of $537 million, up 5 percent sequentially and up 12 percent year-over-year
  • Programmable Solutions Group revenue of $359 million, which does not include $99 million of revenue as a result of acquisition-related adjustments.

In an email to employees acknowledging the human toll of layoffs, CEO Brian Krzanich reiterated that the data center and IoT businesses are now Intel’s primary growth engines. Combined with memory and FPGAs, they delivered $2.2 billion in revenue growth last year. That adds up to 40 percent of Intel’s overall revenue and the majority of its operating profit. Krzanich said the cuts are about “driving long-term change to further establish Intel as the leader for the smart, connected world.”

It doesn’t take a Wall Street analyst to get that trend line.

The biggest takeaway for the channel is pretty simple: While businesses will no doubt continue to purchase some PCs, selling end-user hardware is the past. Cloud, security and IoT are the future, and organizations often need to take painful steps to evolve.

Agree? Disagree? Let me know, either in comments or direct. Follow editor-in-chief @LornaGarey on Twitter.


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