By Tom Blumer ~
In another blow to the U.S. and worldwide economy, chipmaker Intel announced today that it is reducing its worldwide workforce by 12,000 people, a cut of 11 percent.
Of course, there are tech-related reasons why the company made the move, most notably the shift by some users to tablets and smartphones, where the company’s market penetration has been weak and almost non-existent, respectively, as their everyday “computing” devices. But the press is completely ignoring why so many users of aging PCs are holding out against buying a new one until their current units die: they don’t have the money to replace them. Why? Because economic growth throughout the world, including the U.S., has been stagnant and is showing signs of getting weaker — possibly much weaker.
This narrative in the Associated Press’s coverage tonight is typical:
INTEL TO CUT 12,000 JOBS AS IT CONFRONTS DECLINE IN PCS
… The giant chipmaker made the announcement Tuesday as it reported lower-than-expected sales for the first quarter. This as industry analysts say an extended slide in global PC sales is showing no signs of leveling off.
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 the job cuts “difficult,” he said they would help the company sharpen its focus in new areas.
What is happening with PCs is similar to what has been seen with vehicle sales during and after the most recent recession.
The average age of a vehicle on the road increased from 8.4 years back in 1995 to 10.1 years in 2005 to 11.4 years in 2014. Part of the increase has been due to more reliable and durable vehicles, but it’s also clear that more Americans have adopted and continue to cling to a “drive it til it drops” outlook — and then often buy a used vehicle when that happens. Why? Because they don’t have the money to do anything more. It has also become quite clear that the auto industry has allowed credit standards to drop and loan balances to balloon to keep the sales pipeline full. For all the talk of “record sales” last year, they’d be way higher if the U.S. economy was growing at its historical 3.5 percent trendline rate instead of the 2.0 percent or so seen in recent years.
Similarly, according to information I have seen, the average age of a laptop in the U.S. rose from 4.5 years in 2007 to 5.9 years in 2015. This occurred despite:
- the arrival of 2-in-1 machines several years earlier (PCs which can be converted to tablets).
- gradually falling prices.
- the appearance of Windows 10, a reasonably strong operating system which replaced the widely despised Window 8.
- major improvements in speed, battery life, graphics processing, and (to a lesser extent) durability.
This phenomenon has occurred even among many users who fully realize that their current PC is functioning poorly and costing them time, and (to an extent) money.
In late 2014, PC World estimated that 600 million units worldwide were at least four years old. Industry observers thought that hardware improvements and the arrival of Windows 10 would create a positive “kind of a perfect storm,” which would push “the upgrade cycle.”
It didn’t happen. A week ago, PC World reported:
The entire argument behind (buying) these new machines was that aging, five-year-old systems should be replaced. Consumers didn’t buy that argument, nor did they buy as many PCs as vendors hoped.
I would disagree. Many consumers “buy that argument,” but they don’t have the money to buy the computer. In a very important sense, that’s not Intel’s fault; it’s the fault of those who have created the worldwide Keynesian economics-dominated slow-growth economy. In the U.S., it has given us the worst economic performance coming out of a recession since World War II. The earliest casualties in stagnant or declining economies tend to be employees at the makers and suppliers of big-ticket items — and here we are.
Other developments worth watching on the Intel front:
- The Daily Caller notes that the layoffs are occurring despite Intel’s outspoken advocacy for increases in H-1B visas. Surely the company’s need for H-1B workers should decline. (Unfortunately, that’s probably sarcasm.)
- Intel has been under pressure from the grievance industry and the press over its alleged lack of workforce “diversity.” Will the company decide who stays and goes based on genuine merit, which has served it extraordinarily well for over 40 years, or will it cave and play the racial-ethnic numbers game in its decision making?
Tom Blumer has written for several national online publications primarily on business, economics, politics and media bias. He has had his own blog, BizzyBlog.com, since 2005, and has been with NewsBusters since December 2005. Along the way, he’s had a decades-long career in accounting, finance, training and development.