Why is iconic chipmaker Intel laying off 12,000 workers?

The technology pioneer announced a new focus that shifts its business further away from its legacy in personal computers to the fast growing cloud and 'Internet of Things' industries.

As it navigates its path into the future, Intel, the 47-year-old corporation best known for making microprocessor chips that power personal computers, has announced significant changes to its business.

On Tuesday, Intel’s CEO Brian Krzanich said in a letter to employees that the company over the next year will cut its 107,300-person global workforce by 12,000 people, or 11 percent.

The move, said Mr. Krzanich, is meant to help transform Intel from a PC company to one that powers the cloud and the ‘Internet of Things,’ a term used to describe connected devices such as washing machines, coffeemakers, and automobiles. It also will save the chipmaker $750 million this year, says Intel in a public announcement.

“These are not changes I take lightly. We are saying goodbye to colleagues who have played an important role in Intel’s success,” Krzanich said in a company-wide e-mail this week.

But given that global shipments of desktops and laptops declined from 365 million units five years ago to 289 million in 2015, while the combined sales of tablets and smartphones swelled to about 1.7 billion units last year, as Time reports, the move has been long in the making.

Some technology industry analysts say too long. Though the company doesn’t appear to be in serious trouble, some analysts say that Intel should have shifted its focus sooner, as the outlook for the PC market started to sour years ago.

“The sudden, massive layoff looks (at least to this outsider) as if management had been in denial or had failed to take the unpleasant steps it knew it needed to take,” wrote economist and former Fortune 500 executive Bill Conerly on Seeking Alpha.

“Intel is a survivor, with lots of really talented people. ... But this announcement is a sign that management is not as sharp as it should be,” wrote Dr. Conerly.

Intel's cloud and smart devices businesses grew by $2.2 billion in revenue in 2015, making up 40 percent of the company's revenue and the majority of its operating profit, the company reported.

But sales of PC chips still make up more than half of the revenue, analysts point out, so part of Intel's challenge will be to continue focusing on that successful PC business, while investing more aggressively into new markets.

"Intel will continue to milk this PC chip cow while at the same time reinvent itself for the future," Jeff Kagan, an independent industry analyst, told ComputerWorld. "They are going through an enormous transformation. The Intel of tomorrow will not look like the Intel of yesterday," he said.

As Time points out, Intel’s transition mirrors one that Microsoft, and other technology companies from its era, have also faced. Though Microsoft is better off because it reacted to a changing technology landscape more quickly than Intel. As Time reports:  

To date, Microsoft has had a more successful transition. Under Satya Nadella, the Redmond, Wash.-based firm engineered a bold restructuring, laying off thousands of workers last year and repositioning the company around growing markets like cloud computing. That has helped Microsoft improve its stock price by 93% in the past three years.  During that time, Intel’s stock has risen 47%, underperforming the Nasdaq Composite’s 50% gain.