Intel's Restructuring

Intel's long-awaited restructuring was announced last week. Wednesday's Wall Street Journal featured an article detailing the company's plans. The market has been in suspense since this spring, when Intel's CEO, Paul Otellini, admitted the company was thoroughly reviewing all of its operations. I wrote about that in a post here.

My initial observations are largely sustained by the Intel restructuring plan details. They are cutting 10% of their workforce, mostly middle management. The company's senior management actually admits that they have become bloated and slower at decision-making in the middle ranks. This fits with my overall suspicion that Intel has become a victim of "sand in the gears," the term I use for what happens to a company experiencing successful growth for too long. Mediocre employees and bloated processes combine to begin to gradually silt up the company's ability to recognize and quickly react to changing environmental and/or competitive circumstances.

In this case, the combination of AMD's technological challenge to Intel, and the lowering of desktop and laptop PC systems which constitute so much of the end-user demand for the company's signature microprocessors.

Otellini is quoted as saying, "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." Probably true, but, unfortunately, as my old boss and mentor, Gerry Weiss, SVP of Chase Manhattan Bank's Planning and Corporate Development function would, and did say, 'When a company has to "restructure," that generally means it has failed to adapt to changing conditions in a timely manner. It is an indicator of management failure.'

The company is disposing of various smaller new business units connected with communications equipment, as well as focusing on trimming marketing personnel. This is puzzling to me, as I would have thought that product design was the problem, not marketing.

Typically, cutting resources at a company does not foster growth. While Otellini's restructuring program may, in fact, produce near-term profits, it is not at all clear that the results of the program will re-ignite Intel's ability to create superior value-added for its customers at profitable prices. And, thus, consistently superior total returns for its shareholders over the longer term.