The world's leading computer chipmaker had a payroll of 99,000 people worldwide prior to the much-anticipated announcement that it would lay off approximately 10,500 workers.
"These actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come," said Paul Otellini, Intel's president and chief executive officer.
Intel's stock price slipped slightly to $19.73 in after-hours trading, apparently due to disappointment that the job cuts were deeper and faster.
"I think people will go home, think about it and tomorrow morning think otherwise," Global Crown Capital analyst David Wu said, expressing confidence that Intel stock would rebound.
Intel's projected cost-reductions by the end of next year exceeded Wu's expectations by a half-billion dollars.
"The objective is to lose costs," Wu said. "How they do it is irrelevant."
Intel said that its workforce would decline to 95,000 by the end of this year as a result of staff reductions, attrition, and previously announced layoffs.
By mid-2007 the Intel workforce would drop to about 92,000 employees, 10,500 fewer than the company's staffing level at the end of the second quarter of 2006.
The chipmaker also planned to cut costs in merchandising, capital, and materials, according to Intel spokesman Mark Pettinger, to generate savings of approximately $2 billion in 2007.
In 2008 the company expects savings from this restructuring to grow to approximately $3 billion annually.
In July Intel shuffled management on the heels of a lackluster earnings report and the laying off of 1,000 managers at its facilities worldwide.
"It is streamlining the bureaucracy," Pettinger said. "It wasn't just about cutting headcount; it was about making Intel a leaner, more efficient company in terms of everything."
Principal analyst Nathan Brookwood of Insight 64 in California called the Intel cuts "a good start" but was concerned that remaining workers would be spread too thin.
"The folks at Intel were already giving more than 100 percent at their jobs," Brookwood said. "Intel needs to cut back on the breadth of products it is working on."
For example, Intel re-designs microchip architecture in two-year cycles while the industry average is four, Brookwood noted. Switching to four-year cycles would mean that Intel would need fewer engineers.
"I see Mr. Otellini saying 'Stay the course' and I'm not sure staying the course is the right solution for Intel," Brookwood said.
While the deepest cuts were finished, Intel would remain on watch for ways to reduce costs, Pettinger said.
Intel's drive to trim costs and improve efficiency came as it waged a price war with Silicon Valley rival Advanced Micro Devices (AMD).
AMD had begun eating away at Intel's market share before Intel unveiled its family of speedy dual-core Xeon processors in July.
AMD responded in August by unveiling fast, energy-efficient multi-core Next-Generation Opteron computer chips that it heralded as precursors to a quad-core chip to be released in the middle of 2007.
Intel has announced that it will begin selling quad-core processors by the end of this year.
"You have to give credit to AMD," NPD Group research director Neil Strother said while discussing the Intel job cuts. "Competition is a good thing but it can be a very difficult thing."
"When you are Intel and you take a cut of that size, it is painful and you have to lay off some excellent people."
Santa Clara, California-based Intel reported a 57-percent dive in its second quarter earnings this year on weaker demand. It scored a 13 percent drop in revenue from the same quarter last year.
Intel revenue worldwide in 2005 was $38.8 billion.
© 2006 Agence France-Presse
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