Intel to lay off 5,000 people, close five plants

Friday, January 23, 2009

Intel to lay off 5,000 people, close five plants

By Steve Johnson, Mercury News

Amid speculation it may be close to reporting its first quarterly loss in 22 years, Santa Clara computer chip maker Intel on Wednesday said it will lay off at least 5,000 employees — including an undetermined number in the Bay Area — and shut five manufacturing plants.

As part of a corporatewide restructuring, the world's biggest chip maker said it will cease plant operations in four locations: Santa Clara; Hillsboro, Ore.; Penang, Malaysia; and Cavite, Philippines.

The announcement comes a day after some news organizations reported that Intel Chief Executive Paul Otellini had warned his employees during a corporate webcast last week that the company might not earn a profit for the first three months of this year.

Last week, Intel said it earned $234 million on revenue of $8.2 billion in its fourth quarter, which represented a 90 percent drop in profit from the same period a year earlier. Intel executives have not given a formal revenue forecast for the first quarter of this year, but have roughly estimated it will be about $7 billion. The last time the company failed to earn a profit was in the fourth quarter of 1986.

Craig Berger of FBR Capital Markets was among several analysts Wednesday who said he wouldn't be stunned if Intel fails to make a profit this quarter.

"We have seen pretty significant deterioration in demand" for computer chips, he said, though he added that no one — including probably Intel's top executives — can accurately predict the company's fortunes over the next couple of months because of the uncertain economy.

Berger said he believes Intel could earn $100 million this quarter, while most analysts surveyed by Thomson Reuters have forecast a profit of about $190 million. The last time the company's net income was less than that was in the third quarter of 2001 when it earned $106 million.

If Intel does suffer a loss this quarter, it's still in a lot better shape than most other chip makers and should have no trouble surviving the recession, said Nathan Brookwood, a research fellow at the Saratoga market consulting firm Insight 64.

"If Intel can't do OK in the longer term," he said, "then the United States economy and the world economy are in one heck of a lot of trouble."

In a prepared statement Wednesday, the company said the plant closings, "when combined with associated support functions, are expected to affect between 5,000 and 6,000 employees worldwide."

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