Intel's CEO is trying to revamp his 48-year-old company — and it’s causing a lot of anger and turmoil (INTC)

Reuters/Rick Wilking

Shortly after Intel's April quarter-earnings call with Wall Street analysts, CEO Brian Krzanich headed to the Business Update Meeting, the company’s quarterly all-hands widely known as "BUM."

The crowd was predictably hostile: Intel had just announced 12,000 job cuts, or an 11% workforce reduction, one of the largest in company history.

There was an air of tension as Intel didn’t give any advanced notice about the layoffs, according to several employees who attended the all-hands meeting.

During the hour-long meeting, Krzanich was asked pointed questions about site closures, project cancellations, and the long-term goal of the restructuring.

At one point, Krzanich had to answer why he took a raise when the rest of the company was trying to save costs through job cuts. (His response: He started with a low salary and is still below the median for his position compared to his peers, as noted in Intel's annual report.) Krzanich made $14.6 million in total compensation last year, up roughly $3.5 million from the year before.

“You could argue [Krzanich] deserves a raise,” a recently laid-off employee who saw the live-stream of the meeting told us. “But is he the right guy for the job? That’s a separate discussion.”

Big changes, orchestrated by Krzanich, are underway at Intel, one of the Silicon Valley's most iconic companies, which was once synonymous with the tech revolution. In the face of a shrinking PC market, historically its largest cash-cow business, Intel is shifting its focus to server and connected-device chips, while revamping the company's workforce with younger, outside talent.

The changes, however, are causing a widening rift between Krzanich and some of Intel's old-timers. Depending on who you ask, the new Intel is a company mired in crisis with no clear path ahead or one in transition making tough decisions to better deal with the changing business landscape.

Either way, it doesn't feel the same at Intel anymore, according to about a dozen current and former employees who Business Insider spoke to.

“I had a long career at Intel but the last year or two has been a little surprising — it’s not the same Intel I started at,” another former Intel employee, who'd spent nearly three decades at the company, told us.

Reuters/Rick Wilking

Rooting out old timers

The size of the layoffs tells only part of the story. Employees believe Krzanich is intentionally targeting those over the age of 40 in the latest round of layoffs to bring younger blood and fresh ideas to Intel's aging workforce.

In fact, according to data Intel provided to laid-off workers, first reported by The Oregonian and also obtained by Business Insider, 79% of those selected for layoffs in the US so far were over the age of 40. US employees over 40 were also 2.5 times more likely to be affected by the April workforce reduction compared to those not, and the likelihood only increased the older you were.

Given that more than 60% of Intel's US employee base is 40 years or older, the numbers may not be too surprising. Plus, those numbers don't reflect the entire reorg, since it doesn't include non-US workers and represents only the first batch of affected employees. Still, the fate of the older workers has incited a lot of grumblings in the ranks.

"Intel's pushing a lot of the older, experienced knowledge workers out of the door," one former employee griped. "In the short run, that may help fix some financials. But in the long run, I think it’s a mistake."

Not everyone's against Krzanich's initiative. One former Intel executive who spent 20 years at Intel before getting laid off this year acknowledged it was a move long overdue.

He noted Intel's total workforce has grown from 100,000 in 2011 to 112,000 by April 2016. In that period, Intel's revenue has largely remained stagnant at around $55 billion, while profitability worsened. Through April's restructuring, Intel plans to reduce its spending run rate by $1.4 billion a year by mid-2017, giving the company "the highest revenue per employee in Intel's history."

"The workforce at Intel is fairly old. And in order to change the company, you probably need to turnover some of those folks," this person said.

Intel sent the following statement in response to this story:

"Our restructuring is a comprehensive initiative designed to fuel Intel’s evolution from a PC company to one that powers the cloud and billions of smart, connected computing devices. Personnel decisions were based solely upon performance, skillsets and business needs to support that evolution. Factors such as age, race, national origin, gender, sexual orientation, immigration status, or other personal demographics are not part of the process when we make these decisions. We are committed to helping all affected employees through this transition."

Reuters/Rick Wilking

Enter "Murthy"

In addition to going younger, Intel is embracing a culture that barely existed in the past: executive hires from outside the company.

Intel's leadership page shows nearly one-third of the top 23 executives have come from other companies in just the past few years.

During that span, high-profile execs who cut their chops at Intel, like ex-President Renee James and ex-SVP of the client-computing group Kirk Skaugen, have left the company. Doug Davis, the 30-year veteran who heads up Intel's IoT group, also announced his retirement by the end of the year.

The man who best signifies the influx of outside talent is perhaps Dr. Venkata "Murthy" Renduchintala, the man Intel paid $25 million to poach from rival chipmaker Qualcomm.

Not very well known outside of the semiconductor industry, Renduchintala spent nearly 10 years at Qualcomm, coleading its chip business. Most people we spoke to agree he's a smart, well-qualified leader — albeit someone who's got a very demanding work style.

"If you were near Murthy’s office [at Qualcomm], it was very likely that you would hear him screaming at someone, or dressing them down," one former Qualcomm employee told us. "He wasn't shy about expressing his views very, very aggressively."

At Intel, Renduchintala is the company president as well as the leader for its PC, mobile, and IoT groups, essentially making him the No. 2 guy behind Krzanich. During the April earnings call, Krzanich gave him a big show of support, telling investors that Renduchintala would be in charge of reviewing all products before finalizing the reorganization plan.

"Krzanich's been trying to bring in new ideas into the company, but that’s hard because Intel has this strong tradition of promoting from within," Linley Gwennap, principal analyst of the Linley Group, told us. "Krzanich wanted to shake things up so I think he had this idea of bringing in someone from outside to a powerful position."

Despite his powerful position at the company, Renduchintala has kept a low-profile figure. Most of the employees we spoke to said they haven't seen him much in public. One current Intel executive said the internal reception is "mixed," especially because of his excessive compensation package, which "rubbed a lot of execs the wrong way."

Intel rank-and-file employees didn't exactly give Renduchintala a ringing endorsement either, after one of his public speeches in May. According to a survey run in the anonymous workplace app Blind, 94 out of 95 Intel employees either said they "heard a vision, but not much of a strategy" or "heard neither the vision nor the strategy," with only one person saying he did an "excellent job" with his speech.

Reuters/Rick Wilking

Not a PC-chip company anymore

All these changes come against the backdrop of a shrinking PC market. Intel has historically made most of its money by selling PC chips, but is finally acknowledging the reality that it'll need an alternative growth engine since the PC is likely going to be in secular decline, according to Bernstein's analyst Stacy Rasgon.

"Krzanich's trying to pivot Intel away from the dependence on PCs as a primary revenue driver," Rasgon told us. "These things are never fun to do, but they're probably necessary."

Instead, every part of Intel's business now revolves around supporting its data-center group, its fastest-growing and most profitable business unit that enjoys over 90% market share. Last year, Intel's data-center group generated almost $16 billion in revenue, or about one-third of the total. Spending on everything from R&D to marketing is now heavily weighted toward the data-center business, and to a lesser extent the internet-of-things effort.

"I think Intel's done a good job of moving the narrative away from PC. It’s a data-center story now. To me, that seems like a very rational strategy," Rasgon added.

It's been nearly three months since Intel's announced its big workforce-reduction plan. Employees at the company say it's been a restless period, as seemingly every team, regardless of its performance, appears to be required to meet a certain quota of "low performers," who will eventually get pushed out.

And that's taking a toll on long-time Intel employees' morale. One Intel engineer of 28 years said he feels like he's working for a company that no longer wants him, and it's hard to rekindle the old enthusiasm.

"Walking through the cafeteria one day, I saw numerous tables, with a total of ~70 chairs, marked 'Reserved for NEO,'" this guy told us, describing the pressure he feels every day. "New Employee Orientation."

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