Intel Set To Undertake Comprehensive Cost Cutting Review

Intel CEO Paul Otellini Wednesday said the chip giant is set to undergo its first comprehensive efficiency and cost cutting review since the mid-1980s in the wake of a revised 2006 outlook.

"We are just undertaking a look at the company now in a fairly comprehensive fashion," he said in a conference call with analysts after the chip giant revised its 2006 outlook. "The idea would be to look at every aspect of our operations from capital efficiency to our facilities to our resourcing to our various business units to underperforming businesses, etc. This is a wholesale look at the company over the next couple of months to take a look at where we want to be for 2007 and beyond."

At the same time, Intel is planning to slash $1 billion in spending this year. Intel CFO Andy Bryant said that he is hoping that Intel will begin to see some results from the cost cutting efficiency program and will be able to implement additional cost savings.

Bryant said that Intel can hit its revised outlook without layoffs, but it will require head count reduction through attrition and controlling discretionary spending.

The Intel cost cutting comes after the chip giant posted a 38 percent decrease in earnings for the first quarter to $1.35 billion, or 23 cents a share, compared with $2.18 billion, or 35 cents per share, in the year earlier period.

First quarter gross margin was 55.1 percent vs. a January expectation of 59 percent plus or minus a couple of points. Intel said gross margin was impacted by lower processor revenue and higher inventory write downs.

Intel posted a sales decline of 5 percent to $8.9 billion compared with $9.43 billion in the year ago period. Intel shares were up 21 cents or 1 percent in after hours trading to $19.77.

Intel said for the current quarter it expects revenue to be between $8.0 billion and $8.6 billion with gross margin in the 49 percent range plus or minus a couple of points. Intel said the margin reduction compared with the first quarter is due to a higher proportion of lower margin product in the overall mix along with higher processor unit costs and and lower processor average selling prices.

Otellini stressed that the key for Intel to rebound in the second half is not "taking our eye off the ball" in terms of getting highly anticipated new products out the door. "That is the most important thing for us at this point," he said.

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