Intel to cut 11 percent of workforce, take $1.2 billion charge amid weaker 2016 outlook

Intel on Tuesday confirmed it plans to cut 12,000 jobs — that’s 11 percent of its workforce — as it tries to adjust to a shift away from its core PC business.

The chip giant will take a $1.2 billion charge associated with the restructuring, but says the move will save $750 million this year and $1.4 billion per year by the middle of next year.

“Our results over the last year demonstrate a strategy that is working and a solid foundation for growth,” CEO Brian Krzanich said in a statement. “These actions drive long-term change to further establish Intel as the leader for the smart, connected world.”

Along with the restructuring, Intel posted quarterly results. Earnings were ahead of what many analysts were expecting, but the chipmaker cut its sales and profit outlook for the remainder of the year.

The chip giant now expects sales will rise in the “mid-single digits” as compared to a prior forecast that revenue would be up in the mid- to high single digits. It also cut its forecast for gross profit margin to 62 percent, down a percentage point from its prior estimate.

For the January-to-March quarter, the company reported adjusted per-share earnings of 54 cents per share on revenue of $13.8 billion. Intel had been expected to post earnings of 47 cents per share on revenue of $13.8 billion, according to Thomson Financial.

The client computing group, which includes PC chips and remains Intel’s largest source of revenue, had sales of $7.5 billion, down 14 percent from the fourth quarter but up 2 percent from a year ago. The data center unit posted $4 billion in revenue, down 7 percent sequentially and up 9 percent from the prior year. The Internet of Things group had $651 million in revenue, up 4 percent from the fourth quarter and 22 percent from a year ago. Non-volatile memory revenue of $557 million was down 15 percent sequentially and 6 percent from a year earlier.

On the positive side, the security unit saw revenue rise to $537 million, up 5 percent sequentially and 12 percent from the prior year.

Krzanich said on a conference call with analysts that the transition beyond personal computer chips is well underway, with 40 percent of revenue and 60 percent of profit margin coming from places beyond PCs.

Shares were down slightly in after-hours trading, changing hands recently at $30.89, down 71 cents or more than 2 percent.

The company also said current CFO Stacy Smith will transition to a new role leading sales, manufacturing and operations once a new financial chief is in place.

Intel did not say where the layoffs would focus, but in an interview with CNBC, Smith said the the layoffs would be global and not concentrated on any one geographic region.

Update: On the conference call, Smith said the company is also cutting its 2016 forecast for the PC industry saying it expects the market to decline in the high single digit percentages, as opposed to a prior forecast that the market would drop in the mid-single digits. Smith said Intel is more cautious than most third party estimates.

Also, more than half of the planned job cuts will come this year, Smith said.

Although it didn’t break down mobile chip sales specifically, Smith and Krzanich said that the company continues to see sales improve and losses decline. The company said it is on track to reduce mobile losses by at least $800 million after trimming them by $1 billion last year.