Intel, cutting 12,000 jobs, tries to bend the company without breaking it

I asked students in class yesterday if they have ever been in a store where only one cash register is open and a long line has formed. Many, if not all of us have been in that situation. I said, jokingly but also seriously, that the lone cashier is more productive. Then, while reading the linked article on Intel’s recent round of publicized layoffs, I came across this:

"He (Krzanich) mentioned this will be the highest revenue per employee in their history," Rasgon said. "If you’re the employee, life is harder.”

To use management speak, that statement from Rasgon “echoes" what I said in class.

So here we are. Intel is cutting 11% of its workforce of 109,000. Apparently this will cost Intel $1.2 billion this quarter in restructuring costs, save $750 million in FY2016, and $1.4 billion per year starting FY2017. True, intel spends a lot on R&D and capital. We saw this in class yesterday. The article shines some light on the challenges associated with Intel’s capital intensive business:

"Circuits on computer chips are shrinking to near atomic scale, and it’s becoming more expensive and time consuming for Intel to engineer and produce more advanced circuitry. And it’s by no means clear that wearable technolgies and other new concepts will deliver the revenues or profit margins Intel is accustomed to in PCs and data centers, markets where its chips have a near monopoly ."

But back to the layoffs. I’ve never been a manager of a multi-billion dollar company. But that doesn’t stop me from wondering: What would happen if Intel implemented an across-the-board 7% compensation cut[1] to save $750 million in FY2016 compensation plus [some/most? of] the $1.2 billion dollar restructuring charge. This could buy time to restructure without laying off 12,000 people.

Again, I’ve never managed a multi-billion dollar corporation. I have worked at them. I have been through layoffs both as one being retained and one being let go. The across the board (including executives and board members) compensation cuts never seem to come up. I often wonder if across-the-board compensation cuts would be better not only for all the families impacted by layoffs, but better in the long-term for the corporation. Could across-the-board cuts reinforce a “we’re in this together” culture rather than “don’t cut me, cut him/her” environment?

I’ll end with a joke:

“What is the difference between a recession and a depression? A recession is when my neighbor loses their job. A depression is when I lose my job."

[1] Assuming an average salary of $100,000 to make the math simple: $750 million / (109,000 x 100,000) = 6.88%. See for precise numbers.

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