Intel Cuts Displease Some Investors

When Intel Corp. Chief Executive Paul Otellini announced an exhaustive review of the company's unprofitable divisions in April, rumors began swirling about scorched-earth job cuts to reverse sinking profits.

But the restructuring plan unveiled Tuesday by the world's largest chip maker --including the elimination of 10,500 jobs, or about 10 percent of Intel's work force -- failed to please investors.

Intel shares fell 68 cents, or 3.4 percent, to close at $19.31 Wednesday on the Nasdaq Stock Market.

Chip industry experts say the bruising was fueled by increased skepticism and a lack of clarity about Intel's strategy to boost profits and win back market share from smaller rival Advanced Micro Devices Inc.

"People don't think it's enough," said Nathan Brookwood, an analyst with the research firm Insight 64. "They were expecting bigger cutbacks and other changes in terms of writing off some inventories that could be a problem for the company over the next quarter or two, and none of those were addressed. It's a good start, but I don't know if this is going to be enough to solve Intel's problems."

The move was the largest streamlining maneuver yet by Otellini, who became chief executive in May 2005 and oversees a company whose head count had swollen to more than 100,000 workers around the world.

He inherited a thorny challenge: The near-monopoly Intel had enjoyed in its core business -- making the chips that function as the brains of computers -- was dissolving under pressure from AMD.

Many of AMD's advances came during the tenure of former Intel CEO Craig Barrett, when the company was criticized for being too slow to react to the 2003 launch of AMD's critically acclaimed Opteron and Athlon 64 chips for servers and desktop PCs.

AMD slowly began gaining market share, and over the past year has taken about 5 percent of Intel's share of the combined market for server and PC chips, according to Mercury Research.

Intel still holds a commanding lead with about 72.9 percent of that market. But Eric Ross, an analyst with ThinkEquity Partners, said the company is expected to continue losing ground.

"Paul Otellini has been dealt a bad hand, and whether he's a good CEO or not, we'll be able to tell that in five years," Ross said. "They fell behind AMD in a big way, and that's why they're having problems."

Analysts were reluctant to blame any executive specifically for Intel's problems, noting that the company led for many years by management icon Andy Grove has endured large but strategic cuts before.