No. 1 chipmaker Intel (INTC) will cut 12,000 jobs by mid-2017, and that will help kick off a "recession" with nearly 400,000 tech positions to be cut this year, a Global Equities Research analyst predicted Tuesday.
Late Tuesday, Intel added another domino to the layoff train, joining VMware (VMW), Yahoo (YHOO), BlackBerry (BBRY), Autodesk (ADSK) and NetApp (NTAP), which recently announced plans to collectively lay off 5,125 employees.
Intel's 12,000-cut represents 11% of its global workforce. Global Equities Research analyst Trip Chowdhry says it's just a drop in a 369,000 bucket (his prediction for tech layoffs that will be announced this year) and argued against a Federal Reserve rate increase amid what he calls a likely oncoming recession.
PC Transition Will Be 'Messy'
On Wednesday, Wall Street was largely split on Intel's mixed Q1, with at least five analysts still rating Intel stock a buy. At least two analysts cut their price targets, however, and another downgraded Intel stock.
In early afternoon trading on the stock market today, Intel stock was up 1.5%, near 32. But shares are down 8% for the year vs. a 3% decline in IBD's 39-company Electronic-Semiconductor Manufacturing industry group.
For Q1 ended April 2, Intel reported $13.7 billion in sales and 54 cents earnings per share, up a respective 7% and 20% year over year. The consensus of 45 analysts polled by Thomson Reuters expected $13.8 billion and 48 cents.
PC chip sales rose 2%, but that trailed stronger growth in data center, Internet of Things and security -- up a respective 9%, 22% and 12%. Nonvolatile memory chip sales fell 6%.
Current-quarter sales guidance for $13.5 billion, plus or minus $500 million, lagged the consensus for $14.2 billion. Intel's April quarter benefited from an extra week.
Intel's transition from a PC-oriented company will be "messy," Credit Suisse analyst John Pitzer wrote in a research report. Late Tuesday, CEO Brian Krzanich said the layoffs would allow Intel to save $750 million in the first year and $1.4 billion per year starting by mid-2017, so that the company can "intensify" investments in key growth areas.
Pitzer reiterated an outperform rating and a 40 price target on Intel stock.
'Trying To Be More Nimble'
PCs represented 55% of Intel's Q1 sales vs. 58% a year earlier. In 2011, the client computing group accounted for 65% of Intel's revenue. The company is aiming to trim that to 50%, which Semiconductors Advisers President Robert Maire calls a "milestone."
"Intel is certainly trying, perhaps with varying degrees of success, to get revenue from many other markets," Maire wrote in a research report. "While individually, none hold a candle to the PC market, collectively they have been a great offset."
Unlike other companies, Intel isn't in the red while transitioning, Maire noted. He likened the restructuring -- which includes transitioning CFO Stacy Smith into a role leading sales, manufacturing and operations -- to teaching an elephant to dance.
The elephant theme was popular Wednesday. "Who says elephants can't dance?" Summit Research analyst Srini Sundararajan queried in a report. Sundararajan reiterated his buy rating and 37 price target on Intel stock.
"Keeping (2016) capital expenditures the same ($9.5 billion at the midpoint) while proceeding with a layoff confirms that Intel is trying to be more nimble and refocusing itself away from the PC," he wrote in a report.
During Q2, Intel will recognize a $1.2 billion restructuring charge. But the second half of 2016 looks promising, Sundararajan said. Intel dropped full-year guidance to mid-single-digit growth vs. earlier views for mid- to high-single-digit growth.
Sundararajan says this suggests a big second-half-year recovery, with revenue up 13%.
