Intel has announced a further culling of the Intel workforce by 10,500 people between now and 2007. What remains to be seen is whether this is the right prescription for the company's problems.

One view is that the way the cuts are being made will hurt morale and complicate the vendor's attempt at a comeback in its competition with AMD. So said Rob Enderle, principal analyst for the Enderle Group.

"This is not the way you typically do layoffs to minimize the pain and maximize the productivity gains."

This announcement on Sept 5 followed an earlier decision by Intel to lay off 1,000 managers in July.

In Enderle's opinion, Intel CEO Paul Otellini should have copied his counterpart Hewlett-Packard Mark Hurd, who made all of the large cuts for his company at once rather than allow the layoffs to linger.

"When you are cutting this many people and keeping them off balance for a fairly long period of time, it does tend to impact productivity over and beyond the layoffs. There could be execution problems [at Intel] going forward, at least in the period that the layoffs are ongoing."

However, Otellini maintained in his official statement that "these actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come."

Intel, which will see its workforce reduced to about 92,000 employees, is experiencing job reductions across the board in management, marketing and information technology functions. Most of the cuts will actually come next year, a measure that some will see as not being forceful enough.

Some of the reductions are related to the previously announced sale of businesses  such as Intel's communications and applications chip -- and attrition, the company stated in its public statement.

Next year, the company expected that the reductions "will be more broadly based as Intel improves labor efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and improves product design methods and processes."

Despite the cuts that had been rumored for some time in the IT press, some industry observers see Intel making a comeback.

"Intel is right now in a much better place than they were at the beginning of 2006," stated Mathew Wilkins, senior analyst, compute platforms at iSuppli.

He was referring to Intel's introduction of two new microprocessors, one for the desktop, code named Conroe, as well as the soon to be announced Merom for the notebook.

Intel has recently gained the upper hand in dual core with aggressive new pricing, stated Wilkins.

"The company is selling some of its dual core microprocessors for less than $100 -- the same pricing level where you usually see value products like the low end Celeron microprocessor."

These new processors make Intel much more competitive, at a product level with AMD's respective desktop and notebook processors, Wilkins stated.

"[Compared to AMD] Intel was lagging behind on the desktop. The situation on the notebook PCs is that Intel did have the performance advantage. But certainly with the release of these two processor families Intel is addressing the deficit it had the on the desktop market."

A perception exists at the helm of Intel that its management took too long to make decisions, added Wilkins.

"I think the initial staffing reduction [the 1000 managers] that we saw a few months back, was part of the strategy to try to rectify a problem."

Intel continues to be the dominant player in the x86 server market, but it has lost sales to AMD's Opteron which grew in terms of market share from three or four per cent in 2003 upon its introduction to somewhere in the range of 24 to 27 per cent today, stated Charles King, principal analyst at Pund-IT..

The recent introduction of Intel Woodcrest with its performance improvement has slowed down the momentum of Opteron, but King said, "it will not be stopped it entirely."

Meanwhile, Intel has some deeply rooted issues that may be "at the heart of its problems," added King.

Unlike IBM which designed a standard Power microprocessor technology for a host of hardware applications, Intel has made life for itself more complicated by designing separate microprocessor architectures for specific markets.

"Intel developed a standalone processor to compete with the Unix Risc platform in the 64-bit space."

Meanwhile, iSuppli reported that Intel's share of the global chip market in the second quarter of 2006 shrank to 11.4 per cent from 13.2 per cent in the first quarter.

iSuppli reported that this is the lowest market share that Intel has experienced since the company began tracking the quarterly semiconductor market in the first quarter of 2002.

Reprinted by permission of Integrated mar.com (integratedmar.com), EchannelLine © Copyright 2006 Integratedmar.com Corporation.