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Massive Intel cuts likely to hit Chinese workers

By Liu Baijia (China Daily)
Updated: 2006-09-07 14:28

Sources with Intel China said several hundred employees would be affected. Intel now has about 6,800 people in China, including staff at two testing and assembly plants.

A rapid expansion of business lines and a failure to pay enough attention to market changes are the major reasons behind Intel's historic layoffs.

Over the past three years, the company added more than 20,000 employees and established new business groups such as one for mobile phone chips and one for digital health.

Finding the funding was not a problem for the Intel of three years ago, which enjoyed an overwhelming dominance in the market and had a good cash flow. But competition, mainly from AMD, has eaten away at Intel's shares and profits, highlighting the importance of maintaining a lean and efficient organization.

In May and July, Intel launched two rounds of price wars with AMD and by the end of the second fiscal quarter on July 1, the company's revenue stood at US$8 billion, down 13 per cent, while operating income fell by as much as 60 per cent year-on-year to US$1 billion.

Statistics from the US Semiconductor Industry Association show the shipment of computers rose by 10 per cent in the second quarter over the same period of last year, but the average price of a laptop computer fell by 18 per cent due to competition.

Simon Ye, principal analyst of computer systems with the research house Gartner, said Intel's difficulties are related to the market trend.

Intel, famous for controlling computer makers with its technologies and marketing strategies, was focused on expanding into new territories such as mobile phones and maintaining the Moore's Law, which is named after one of Intel's founders and says the clock speed of a microprocessor doubles every 18 months.

However, it failed to pay attention to computer vendors' demand for another computer chips supplier and AMD's focus on new technologies in 64 bit computing and dual-core processors, which are especially useful in handling complicated enterprise computing, won the confidence of computer makers.

In contrast to Intel's financial performance, AMD's net sales rose by more than 50 per cent in the second quarter ending on July 2 at US$1.22 billion, while operating income grew by almost 23 per cent year-on-year.