Intel cuts to bypass F.C. team this time

It’s a familiar song and dance for Northern Colorado.

The restructuring of various technology companies has resulted in the loss of hundreds upon hundreds of jobs in the region. Many hoped that era had ended, and with new technology companies coming to the area, the future looked bright.

So should there be worry about Intel Corp.’s recently announced restructuring?

On Sept. 5, Intel made public its highly anticipated plan to axe a substantial number of positions. By the end of 2007, the company will have decreased its workforce by 10 percent – down 10,500 to 92,000. The anticipated savings of the reductions and other changes not related to work force will reach $3 billion by 2008.

The company expects to be down to 95,000 employees by the end of this year, with most of the cuts made in management, information technology and marketing. The cuts this year also include reductions from the sale of business units and previously announced plans to further reduce management. Intel announced in June it would sell its 1,400-employee communications and applications processor business to Marvel Technology Group Ltd.

Analysts are predicting that the actual reductions will be more than 10 percent.

“The 10 percent headcount reduction does not include, best we can tell, the NOR Flash memory business unit, which we believe Intel will sell or spin off in the coming quarters,´ said Hans Mosesmann, senior vice president and senior analyst for Moors & Cabot Investments.

The unit, which has applications in wireless devices and embedded systems, employs between 5,000 and 7,000 people, according to Mosesmann. If Intel successfully divests it, the total headcount reduction will be closer to 15 percent.

Local effects

So, what can the restructuring mean for the Fort Collins group?

Late in 2004, the city of Fort Collins breathed a sigh of relief when it learned that 300 Hewlett Packard Co. jobs transferred to Intel would likely stay in the region. The companies reached an agreement to transfer the HP employees working on the Intel Itanium processor team in Fort Collins over to Intel.

Intel and HP co-developed the processor, and it is used in HP hardware.

In conjunction with the employee transfer, HP committed to invest about $3 billion for three years to drive the Itanium servers into a leadership position in the server market.

“I would say that in terms of an Itanium roadmap, the core of the group would seem to me to be safe, given Intel will need to support Itanium well into the next decade,” Mosesmann said, but qualified that by adding that he didn’t have details about Colorado’s Itanium group.

Intel has not released information about how the cuts will affect specific sites or business groups, and is not likely to, according to Judith Cara, spokeswoman for Intel in Colorado.

One thing that is certain is that the group will not likely grow in the coming years. When Intel decided to relocate the Itanium group to the Celestica building on Harmony Road, there was hope that it was an indication of intentions to expand. At its peak, Celestica employed 900 in the nearly 200,000-square-foot building.

Early last year, Intel had 325 employees in Fort Collins. That number has grown to just under 400 today, but there will be basically no hiring during the restructuring.

“I understand that there are very few (job) postings right now,” Cara said.

She added that there will always be highly specialized positions that need to be kept filled, prompting hiring to fill vacated positions. That would likely be the extent of the hirings while the restructuring occurs, she said. According to the Intel Web site, there are two job openings in Fort Collins – one of which is an intern position. There are only 82 openings for all of Intel’s U.S. operations.

Impact on incentives

The possibility of Intel freezing the size of its Fort Collins work force – or reducing it – also raises the question of how that might affect its incentives.

Earlier this year, the Larimer County Commissioners voted to ink a 10-year tax incentive program with Intel Corp. The incentive package will relieve the company’s business personal property tax burden by up to 50 percent.

The requested relief would apply to the $20 million in capital improvements the company expects to make, as well as taxes on existing equipment now valued at $810,000. According to estimates, the tax incentive would excuse the company from paying more than $83,000 during the 10-year period.

“We’re not really aware of any impact that the Intel restructuring would have on our incentive package,´ said County Manager Frank Lancaster. “We haven’t really looked at that on this end and haven’t really looked at what the restructuring means to their Fort Collins shop.”

He added that the county would likely find out first if there will be any major impact and if that will affect how the county commissioners feel about the incentives. Cara said that she wasn’t aware of any stipulation in the incentives agreement that would be affected by any changes in staffing.

Good for business

While staffing reductions always leave a sour taste in the public’s mouth, the business perspective tends to be a bit brighter.

“Intel has a fairly easy task at hand in its re-org effort given that their new processor products are very, very good, and their manufacturing process roadmap is almost two years ahead of (competitor) AMD,´ said Mosesmann. “What Intel simply needs to do is get out of a multitude of non-x86, non-core product areas. The other area to cut is one or two layers of redundant management.”

Mosesmann sees the management simplification as not only beneficial for savings, but also for decision-making.

“One of the reasons Intel did not respond quickly enough to AMD was that the middle managers were not conveying the urgency of the matter to senior management,” he explained.

The restructuring announcement has not prompted any changes in ratings from stock analysts. On Sept. 7, Standard & Poor’s Rating Service said it would not change Intel’s rating.

“The $200 million costs of the plan are more than offset by expectations of over $2 billion in near-term cost savings and the company’s overall financial strength,” S&P wrote. “Despite Intel’s recent decline in operating performance, we expect the company to maintain its market leadership in its core microprocessor businesses.”

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