Turnaround Talk Lifts Intel

Shares rise more than 2% after the CEO outlines a restructuring.
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Faced with slowing PC demand, eroded market share and an inventory glut,

Intel's

(INTC) - Get Report

top brass outlined a comeback plan Thursday.

Speaking at the company's spring analyst day event in New York, Intel's executives detailed the company's recent travails, and vowed to turn things around by transforming the 100,000-employee company into a leaner, more agile operation.

"We are very well aware of the realities of our current and future business outlook," said CEO Paul Otellini. "We are taking actions to address thoserealities."

Besides the already announced cuts of more than $1 billion from 2006 spending, Otellini pointed to an internal review process designed to "restructure, resize and repurpose" the company, hinting that significant layoffs could be in the offing. Other cost cuts could embrace more than just the headcount.

"In my mind, it would be way too simplistic to simply do a reduction in force," he said.

Shareholders liked what they heard, bidding up the stock 47 cents, or 2.5%, to $19.96 on Thursday. Intel remains down 20% from the start of the year and is 31% off its 52-week high of $28.84, hit July 19.

Intel's 90-day review will examine everything from employee productivity to nonperforming businesses and capital efficiency, said Otellini.

The first actions resulting from this review process will occur as soon as they're fomulated, he said, while other actions could stretch into 2007.

Meanwhile, Intel executives said the company's market-share losses would bottom out in the current quarter, with gains returning this summer.

"We're poised for a second half rebound in

server share," said Anand Chandrasekher, the general manager of sales and marketing.

With its stock trading near a 52-week low, Intel has struggled in recent months. Although the company supplies microprocessors to roughly 80% of theworldwide PC market, it has steadily lost market share to rival

Advanced MicroDevices

(AMD) - Get Report

, whose current line ofprocessors are considered superior to Intel's on aperformance and power-efficiency basis.

Last week, Intel told the Street that it expected2006 revenue to be down 3% year over year,compared with its initial projections of increasingsales between 6% and 9%.

The company blamed much of the shortfall on aglut of a couple million microprocessors that have accrued among Intel customers.

Chandrasekher detailed how Intel got itselfinto its current inventory hole, tracing the problemto the company's constraints in producing enoughchipsets throughout 2005.

With chipsets scarce, customers started buildingup their inventories to ensure that they weren'tcaught short. These ordering patterns maskedthe slowdown in the PC market that began in the thirdquarter of 2005.

Intel executives said the company was now workingwith customers to ensure that the excess inventory iscompletely burned off in the current quarter, makingroom for a new lineup of microprocessors that Inteldescribes as its most competitive in years.

Beginning in June, Intel will release the newWoodcrest server processor, followed closely by newdesktop and notebook chips that are based on a brandnew microarchitecture that promises vastly enhancedperformance and greater power savings.

In past cycles, a confluence of a new processor product with anew microarchitecture has led to Intel'sbiggest share gains, said Otellini.

"We will use those new products and that newtechnology to drive market share up, just like we didevery time in the past," said Otellini.

Otellini also pointed to emerging markets and anew breed of ultra-portable PCs as new avenues ofgrowth for the company.

While 83% of U.S. households have PCs, he said, PC penetration was an "abysmal" 2.8% in emerging markets. Intel plans to grow in those markets through initiatives like its recently announced multi-usercommunity PC, as well as a special sub-$400 PCs soldthrough telephone service providers in countries likeMexico.

And with continuing improvements to powerefficiency and form factor, Otellini said there was amarket for a new generation of handheld gadgets thatincorporate various radio chips and featurefull-fledged, always-on Internet capabilities.