Editorial: Harsh medicine at Intel Corp. 

It is not good news for the Bay Area when a new round of large-scale layoffs hits Silicon Valley high-tech companies. Those companies have been a driving force in our regional prosperity. And being laid off is certainly bad news indeed for the thousands of specialized and highly qualified men and women whose lives suddenly become dislocated through no fault of their own.

Last week Intel Corp. of Santa Clara, the world’s largest computer microchip maker, announced it would eliminate at least 10 percent of its global work force — some 10,500 jobs — in order to save $3 billion a year, reverse slumping profits and focus better on regaining market share lost to smaller rival Advanced Micro Devices.

In doing so, Intel follows Hewlett Packard and Sun as this year’s third leading Silicon Valley manufacturer to begin a process of major layoffs. The Hewlett Packard cuts are already widely credited with improving the company’s long-term prospects, while Sun’s layoff effects are still too recent for evaluation.

During the first few days after announcing its ambitious restructuring plan, Intel’s stock price seesawed up and down in active trading. Actually, Intel’s cost-cutting already got under way this spring, with more than 1,000 mid-management jobs shed to simplify organizational layers, and the first round of money-losing divisions sold off to new employers who we hope will absorb many existing workers.

Intel’s expanded layoff plan is now part of an overall strategy looking to turn around its sagging fortunes in the face of fierce global competition. The approach worked once before, during the 1980s when Intel rode out an earlier computer market downturn by laying off 30 percent of its employees, thereby laying the groundwork for two decades of re-expansion and profitability.

If that happens again and enables the company to survive, the unpleasant ongoing measures will be justifiable. Intel said it’s trying to soften the blow by attaining as much as half of the downsizing via attrition and selling off marginal businesses. It also expects to spend as much as $200 million on severance payments.

One thing that Intel appears to be doing right is concentrating its new layoffs on management and marketing, rather than on chip manufacturing employees or technical researchers. The company even expects to do a bit of new hiring for its fabrication factories and research laboratories during coming months. It has no choice, if it expects to strengthen its core business and leapfrog technologically ahead of rival AMD.

Intel went on somewhat of a hiring spree during the last few years, for which the price is now being paid by all concerned. Business in this age of globalization can lead to difficult choices, but today there seems no other option for staying alive in the world marketplace.

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Staff Report

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A daily newspaper covering San Francisco, San Mateo County and serving Alameda, Marin and Santa Clara counties.
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