Intel has announced plans to shed 10,500 employees by 2008 and cut costs by $3bn a year. 

Following its axing of 1,000 management jobs last month, the chip giant has issued a statement on its restructuring, promising more efficient use of existing fabrication plants and processes, as well as a 10 per cent reduction in its headcount to 92,000.

Martin Hingley, group vice president at industry analyst IDC, told vnunet.com: "AMD beat Intel by being first with technologies such as 64-bit x86 and made Intel focus on speed to market. Now Intel has to concentrate on efficiency.

"Intel cannot squash AMD or they would be hit with a big antitrust stick, so they have to become more efficient." 

Rumours were circulating in Silicon Valley last month that Intel would cut up to 20,000 jobs. The reaction from Wall Street investors and analysts seems to be that 10,500 may not be enough to make Intel as profitable as it would like.

Intel turned over $38.8bn in 2005 and made $8.7bn in profits after tax, results which show a 13.5 per cent and 15 per cent growth respectively on 2004.

The axe will fall on jobs by the middle of 2007, according to Intel's statement, costing the company around $200m in severance.

Up to $1bn of capital slated for spending on new manufacturing equipment will remain in the bank. So the lower headcount and reduced operating and sales costs will lop $3bn a year off Intel's spend by 2008.

"The efficiency trip is one that several large organisations, such as HP and IBM, have made recently," said Hingley. "It is symptomatic of the overall maturity of the sector." 

Most industry commentators consider it healthy that one of the biggest suppliers in the computer business has been forced to respond dramatically to burgeoning competition.

"The PC manufacturers and the [sales] channel have been complaining for years that they cannot make money out of making and selling PCs because suppliers like Intel and Microsoft are so dominant," said Hingley.

"So maybe it is not an altogether bad thing for the sector that some redistribution of wealth occurs naturally from time to time."