The US computer chipmaker said the restructuring will help save $2 billion in expenses in 2007 and $3 billion annually in 2008 and beyond.

The move, announced late Tuesday afternoon, follows rumors of upcoming cuts that began circulating late last week.

The company said that much of the savings will come from a combination of non-workforce-related steps and a significant reduction in Intel's workforce, which stood at about 102,500 workers at the end of the second quarter of this year.

Cost-cutting priority

The workforce will shrink to about 95,000 by the end of this year though layoffs, attrition and previously announced actions and then will drop to about 92,000 by the middle of 2007. Intel will also cut back on merchandising expenses, capital expenses and materials.

"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," Paul Otellini, Intel's president and CEO, said in a statement.

Most job reductions this year will occur in management, marketing and IT functions, as well as from previously announced sales of businesses, according to the company. Next year, the reductions will be more broadly based as Intel boosts labor efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and bolsters product design methods and processes, the company said.

The company expects severance costs to total approximately $200 million.

Arnold Reinhold, an analyst at Waltham, Mass.-based Hurwitz & Associates, said Tuesday that Intel's direction is clear. "The short answer is that they've been under a lot of pressure from [Advanced Micro Devices] and they've got to get to a point where they can make money."

Rob Enderle, principal analyst at Enderle Group in San Jose, Calif., said the problem with Intel's announcement is that the company's staff cuts have been coming piecemeal -- meaning this may not mark the end of layoffs. A similar situation occurred at Hewlett-Packard Co. (HP) when then-CEO Carly Fiorino launched multiple rounds of layoffs, leaving the remaining workers with a vague idea of the company's direction, Enderle said.

When Mark Hurd took over at HP, he implemented one round of layoffs, made it clear that the time for rebuilding was upon the company, and set out to make it happen, Enderle said. "Now [HP is] really taking the battle to Dell," he said.

At Intel, the several rounds of layoffs do not inspire confidence in the remaining employees or with business partners, he said. "I'm not convinced that this will do what [Intel] expects it will do. Cuts are cost-containment only. They don't help the overall productivity and competitiveness of a firm. You lose a lot of people, then you have to recover from that loss.

"AMD's going to have a field day cherry-picking Intel for a while."