In a speech to employees Wednesday, CEO Craig Barrett said the leading chipmaker is running ahead of its plan to trim more than 5,000 jobs by year-end. But while Barrett said the company doesn't currently expect further layoffs, he effectively conceded that Intel remains bloated.
"It is very important to note here that our current headcount is some 20,000 employees higher than it was two years ago, when our revenues were about the same level as today," Barrett told Intel workers Wednesday morning.
The speech, which a company spokesman characterized as an opportunity to address employees "in the current environment," underscores a common dilemma across the tech sector: Precipitous sales declines have pressured companies to slash jobs they added only in the last year or two. Needless to say, having too many workers inhibits profitability, which is the last thing Intel needs as the industry suffers its worst downturn in years. An Intel spokesman declined to comment on whether the company plans any more cuts.
Call it the flip side of the tech boom. Just as wildly rising sales led to the recruiting and hiring binges of the past few years, the yearlong tech recession has led to sharply falling sales and rounds of layoffs. And with airlines slashing jobs by the thousands in the wake of the Sept. 11 attacks on New York and Washington, any further cutbacks increase investors' anxiety about a potential recession that could depress tech sales even further. Intel, already some 60% off its 52-week high, dropped 32 cents Thursday to $20.58.
Few companies have avoided the painful contractions of staff and revenue as they attempt to realign their business plans. Chip rival
said this week it would cut 15% of its staff, and Japan's
recently announced plans to cut 10% of its worldwide staff in the next three years.
Analysts expect Intel's 2001 sales to fall between 21% and 31% from a year ago. But its staff-cutting plans target just 6% of staff, which means that no matter how frugal the company is being it will be hard to keep costs in line with revenue. And as one observer pointed out, investors don't like to see earnings shortfalls, particularly from companies they view as "too heavy with employees."
Intel, which has suffered a number of profit shortfalls over the past year amid evaporating industrywide tech spending, started the year with 86,000 workers. With the original reduction plan expected to exceed the 5,000 target, Intel could see a year-end head count of around 80,000. Barrett added that improvements in the business could spare employees from cuts.
"If the economy and our business begin to recover in 2002, then I believe we can make it through these difficult times without any corporatewide actions," Barrett told employees.
Earlier this month, Intel said sales for the quarter would likely hit the low end of previous guidance. That was Sept. 6, nearly a week before the terrorist attacks on New York and Washington. Salomon Smith Barney's Jonathan Joseph, an Intel bull, told clients then that he didn't interpret the message as a setup for an earnings warning.
But some investors are feeling a bit more skeptical.
"This quarter will be a tough call," says a New England-based hedge fund manager who is short Intel. "If they don't miss this quarter, next quarter's numbers will have to come down. It's either third quarter or fourth quarter, or both."
One thing seems clear: If Intel misses its profit mark, the unspecified extra 20,000 employees have certainly been put on watch.