Yesterday, Intel (INTC) announced 1Q16 earnings that were up year on year and more or less in line with the Wall Street consensus. It did, however, lower full-year 2016 guidance a bit, based on a weaker than anticipated PC market.
More important, the company also disclosed a major restructuring aimed at orienting INTC away from its legacy personal computer business and toward the cloud. The restructuring will eliminate about 12,000 jobs, or 11% of INTC’s workforce. It will result in a $1.2 billion charge against 2Q16 earnings and is intended to be saving $1.4 billion annually a year from now.
The plan appears to be at least in part the brainchild of Venkata Renduchintala, recently hired away from Qualcomm to be INTC’s president–with the intention of having him make the kind of changes just announced.
Reading between the lines, this is a good news – bad news story. The good news is that INTC, seeing the Ghost of Christmas Future in Hewlett Packard, is making significant changes to reorient its business.
The bad news is that it sounds to me like there may be a significant anti-change bureaucracy entrenched at INTC. This is what I read the Oregonian as saying when it cites “a lack of product/customer focus in execution” as Mr. Renduchintala’s conclusion from his review of INTC’s manufacturing operations. That’s also the reason, I think, for changes in senior management. Maybe a fat-cat attitude is not so odd for big corporations in general, but it’s of disappointing for a firm whose former chairman and manufacturing chief wrote a management book twenty years ago titled Only the Paranoid Survive, stressing market awareness as key to success.
In practical terms, I think what this means is that INTC is still a bit more GM-ish than I had thought possible. In consequence, the transformation INTC has been talking about for years and which current top management clearly wants won’t take place overnight. Still, I think that the moves INTC is making are needed and are an overall plus.
Pre-market reaction has been mildly negative. I guess that’s about what one should expect. Personally, I’m encouraged and remain content to collect the dividend and wait. I’d be tempted to buy more on a selloff.