Losing 5,000 Intel Jobs - Blame Mobility and Wearable Technology

The story from Intel (News - Alert) today - in particular the part of the story that notes Intel will shed 5,000 jobs in 2014, is one that encompasses past, present and future. For those of us living in the moment it certainly will not be a happy moment to either learn of the 5,000 cuts - or far worse, to be among those being cut. The answer to why Intel has to do so is, of course, the superficial one that points to the steady decline in the use of PCs (desktops or laptops) by consumers.

As PC sales continue to drop on the consumer side, Intel has no real choice but to make adjustments to what it is it produces, how it produces them and who produces them. Clearly the company has to make real shifts here as the world at large won't wait for Intel to do so. Intel finds itself in need of chasing the markets and as part of this it has to do the necessary housekeeping internally to balance products, sales, revenues, productivity, TCO and both top and bottom line numbers.

The real problem for Intel - as we and numerous others have outlined over the last three to four years has been the company’s failure to truly grab hold of the mobile devices world we now live in and the wearable tech world we soon will be living in. In any case, the drop in PC shipments - which both the industry and Intel itself should have been able to predict, represents the past. Mobility in its various forms - including smartphones - represents the present. Wearable technology represents the future, albeit a future that is rapidly descending on us and Intel.

That Intel demonstrated a poor lack of awareness and failed to take measure of the inevitable decline of the consumer PC market is now a thing of the past. That Intel knows it has to be a key mobile player is the present problem.

But the problem now isn't one of lack of awareness. It is one of Intel necessarily still needing to drive down the overall cost of using its new SoC (system on a chip) designs in mobile settings - especially tablets and smartphones. The company has done amazing work to bring down the power requirements of its SoCs while at the same time significantly enhancing graphics capabilities. These two capabilities have traditionally been at polar opposites -with the latter always demanding and requiring much more of the former.

The delivery of a non-trivial increase in graphics performance while reducing power consumption is a huge achievement for Intel. But Intel still needs to drive down the cost for all of the supporting circuitry that uses its SoCs. But we're convinced Intel is finally on the right path here.

Finally, our view of it is that Intel is in a good position with the announcement of its absolutely new 10 nanometer Edison SoC to tap into the consumer wearable tech market, wearable healthcare market, machine to machine (M2M) market and by extension the Internet of Things (IoT) market at just the right time. Built from the ground up to take up the challenges of these markets - all of which necessarily need to deal with low cost devices - Edison looks to us to be the right device at the right time for Intel to finally put its future directions properly in place.

Intel's still new CEO Brian M. Krzanich has made no bones about the fact that Intel made major mistakes, but he also makes it clear that Intel has realized its mistakes. Krzanich has certainly lit a fire under Intel to quickly show us how Intel’s newest chips will - as we just noted - be serious players as part of wearable computers, biometric devices and connected appliances.

During last week's quarterly earnings call, Stacy Smith, Intel’s CFO, further noted last week that, “Things like the data center, tablets, low-power systems on a chip are critical. There’s going be a significant shift in investment over the course of the year to capitalize on low power SoCs.” No doubt! This is critical for Intel to succeed in both the present and the future.

As an aside Smith noted last week that Intel's PC division dropped four percent in 2013 over 2012, but also noted that the business is still generated $33 billion in revenue in 2013 - almost two thirds of total revenue of $52.7 billion. Let's face it the PC business is still huge - and the enterprise business will continue to provide strong demand. Smith also last week that 2014 revenue would be flat and that gross profit margins might shrink (more than anything financial analysts hate hearing about margin drops).

Research and development spending will remain stable even though that will reflect down pressure on profits. And it is exactly here that we find the key reason for the layoffs. Intel has to prepare in a world based on today's realities (the drop in consumer PC demand) for tomorrow's eventualities - those being exploding demand for wearable tech and mobile devices. This is what Smith means by "a significant shift in investment."

Tough decisions require making difficult choices. We can only hope that today's difficult cuts will at least create an environment for Intel to be able to greatly increase the workforce again as the wearable and mobility markets deliver on their revenue promises.