Editor’s note: Intel is turning from one legacy – a performance relying on chips for PCs – to a new one focusing on “cloud,” mobile devices, 3D and other opportunities. As PC sales tumble, Intel is rebooting, and look for the tech giant to stabilize by mid-2017, says Technology Business Research analyst Krista Macomber.

HAMPTON, N.H. – In an IT industry characterized by vendor restructuring to adapt to massive disruption, Intel (Nasdaq: INTC) is making moves to reduce its reliance on legacy businesses and sharpen its execution on pockets of burgeoning demand.

As PC device lifecycles extend and overall customer demand for PCs declines, Intel has responded by diversifying its business to empower customers’ burgeoning implementations in areas such as cloud computing and the Internet of Things (IoT).

As a result, Intel achieved corporate revenue growth of 7.2% year-to-year, climbing to $13.7 billion, in 1Q16 despite slower growth of 2.1% in its core, PC-centric Client Computing Group. However, heavy investment in portfolio development coupled with sluggish revenue performance in legacy businesses drove operating margin down 170 basis points year-to-year to 18.7%.

To improve its operating margin in future quarters, Intel plans to reduce its employee base by 12,000, or more than 10%, and reduce $1.4 billion in other areas of spending by the middle of 2017, to drive efficiencies and facilitate sharper and more agile execution in strategic markets.

During 2016, TBR expects further operating margin attrition from Intel, pressured by slowing top-line growth, ongoing restructuring, and continued investment in its growth initiatives.

However, as Intel further ramps innovation and manufacturing capabilities in areas such as 3D-NAND, as well as the necessary go-to-market initiatives to facilitate quick monetization, during 2016, we expect Intel will begin to stabilize its bottom line in 2017. Critical to Intel and its partners, TBR believes, will be adjusting its training and go-to-market strategies to address the increasingly comprehensive and complex web of technologies to serve broad initiatives in areas such as connected devices and hybrid cloud.

Leveraging initiatives such as its Rack Scale Architecture to message cohesive expertise that spans not only compute, but also storage and networking components, and facilitates cost savings and flexibility for customers will help Intel to enter a new phase of revenue growth and increase its traction in customers’ next-generation data center environments.

CEO: “It’s time to transition”

Intel, which has long been the world’s leading maker of PC chips, is now trying to expand into other types of computing.

“It’s time to make this transition,” CEO Brian Krzanich told analysts. While calling thej ob cuts “difficult,” he said they would help the company sharpen its focus in new areas.

The latest cuts follow an earlier reduction of about 5,000 jobs announced by Intel in 2014, and analysts say they may not be the last.

“These companies are so big that it takes time” — and sometimes multiple rounds of restructuring — to change direction, said Patrick Moorhead, a longtime industry expert at Moor Insights & Strategy.

Krzanich has been pushing Intel to change its focus from PCs to other computing segments that are growing and providing more profit. These include making microprocessors for “cloud computing” data centers, along with chips for Internet-connected gadgets, wearable devices and drones.

“We are evolving from a PC company to one that powers the cloud and billions of smart, connected computing devices,” he said in a statement.

Intel said the job cuts will include “voluntary and involuntary departures” over the coming year, some of them occurring as Intel consolidates some of its PC chip operations into fewer locations. A spokeswoman declined to say exactly which jobs or locations would be affected.

– From The Associated Press

Intel applies R&D spend and its Cloud for All initiative to expand its traction in cloud and software-defined environments

Intel is seeking to protect its leadership in the data center by addressing customers’ accelerating migrations to hybrid cloud environments and software-mediated functionality. In addition to focusing its innovation on improving simplicity and performance for cloud-based and software-defined environments, Intel launched its Cloud for All initiative in July 2015 to accelerate deployment of Intel-based cloud data centers by customers. Intel is ramping up investments, including its spending on joint development initiatives with partners, through Cloud for All to accelerate its cloud IT infrastructure revenue growth by addressing customer demand for simplified migration to public, private and hybrid cloud environments.

Intel has launched new Xeon processors, codenamed Broadwell-EP, that are designed to provide faster and more reliable access to data across a range of modern workloads, and also is investing in 3D NAND technology to increase storage density and performance for cloud environments. Intel is augmenting its R&D functions with a growing number of strategic, complementary partnerships through its Cloud for All program. For example, it works with Core OS and Mirantis to provide container-based orchestration and applications. Additionally, Intel in 1Q16 began building a network of Centers of Excellence jointly with partners such as VMware to accelerate customer deployments and instill proof of concept with customers. By tapping into these partners’ capabilities, Intel is able to enhance its capabilities in critical areas such as data access.

Intel invests in its channel program to drive revenues in emerging areas and protect its Data Center Group business

To protect its install base, Intel is aligning its data center portfolio and go-to-market approach to better address customer demand for next generation solutions targeted at enterprise, midmarket and SMB customers. Although the vendor continues to invest in its data center business to ensure its leadership in the global server market and protect its most profitable business, Intel is updating go-to-market programs to meet evolving customer purchase criteria.

Intel has stated the company aims to grow its number of channel partners by the double digits in North America in 2016. To achieve this goal, Intel is applying investment resources to empower its channel partners in next generation technology areas such as IoT, using the profits and intellectual property from its core data center and PC businesses to expand solutions and brand reputation. Intel is increasing the number of training and development programs available to partners interested in these strategic markets.

For example, through its Internet of Things Solutions Alliance, Intel will join channel and technology partners to quickly create unique IoT solutions.

TBR believes that such programs will help Intel to attract new channel partners, building from its reported 15% year-to-year growth in its number of channel partners during 2015 for an even larger partner ecosystem in 2016.

(C) TBR