Intel CEO: Chip Giant Will 'Narrow Down' Focus After Slashing PC Market Expectations For 2016

In response to the struggling PC market, Intel CEO Brian Krzanich told investors during Intel's first-quarter earnings call Tuesday that the company is changing its focus and lowering expectations for the PC segment.

Intel will restructure to focus on growing areas within the Client Computing segment -- such as 2-in-1s and the enthusiast area -- as well as other markets including data center, Krzanich said.

"It's not just about cutting costs, necessarily, in the client area. ... It's really about narrowing down and allowing us to invest more in those areas," he said. "We think we can be more focused. There are areas of the client space that are growing -- 2-in-1s are growing double digits year over year, gaming PCs are growing year over year.’

[Related: Partners: Intel Job Cuts Critical For Tapping Into Data Center, Internet Of Things Demand ]

Intel said it expects the PC market to decline in the high single digits in 2016 -- faster than earlier predictions that said the market would drop in the mid-single digits.

The lowered expectations come as Intel said it will cut 12,000 jobs globally -- about 11 percent of its workforce -- as part of its initiative to "intensify focus in high-growth areas where it is positioned for long term growth."

As a result of this restructuring, Intel said, it would reduce its spending run rate by $1.4 billion a year by mid-2017. Shares dropped 2 percent in after-hours trading, to $30.89.

While Intel is struggling with the PC market, the chip giant continues to lean on its data center and Internet of Things segments in the first quarter -- its data center segment grew 9 percent over the same quarter last year, while its IoT segment grew 22 percent over the same quarter last year. Intel's client computing segment also saw growth -- 2 percent -- from the same quarter a year ago.

Jon Bach, president of Puget Systems, a Kent, Wash.-based Intel system builder partner, praised Intel’s investment in products in the data center, high-performance computing and memory segments -- including technology like 3-D XPoint and Intel Xeon Phi.

"Intel Xeon Phi is about to take a big next step with Knight's Landing [Intel's second-generation Xeon Phi processor that is built for high-performance computing]," he said. "They just launched a developer workstation, and have some major supercomputer wins coming later this year and in 2017. I'd like to hear about their progress with Knight’s Landing, and when they expect to bring it out of the world of development and large-scale supercomputers, and into the broad data center.’

Dominic Daninger, vice president of engineering at Nor-Tech, a Burnsville, Minn.-based custom system builder, also applauded Intel's investments in the data center space, but warned that other companies, including ARM, are also looking to make strides in that market.

"We’re watching for moves and developments in the data center area," he said. "But we're also seeing moves by ARM and Google [which recently announced a partnership with IBM and Rackspace in the data center] in that space."

Overall, Intel reported first-quarter earnings of 54 cents per share on revenue of $13.8 billion. That beat expectations of analysts surveyed by Thomson Reuters , who said Intel would report earnings of 47 cents per share on revenue of $13.84 billion for the most recent quarter.

"Strategically, Intel says they will take the savings in the mobile and PC business and double down on investments in IoT, flash memory and data center products," said Patrick Moorhead, president and principal analyst at Moor Insights & Strategies, an Austin, Texas-based research firm. "Data center has been an absolute profit dollar driver, and Intel's big bet in differentiated 3-D and XPoint memory just increases the size of the basket.

"Intel says they will invest more in PC markets like 2-in-1s, gaming and home gateways. All we can assume is that cuts will be made in 'mainstream' productivity and consumer PCs not tied to gaming and 2-in-1s. What's clear is that Intel will continue to invest in LTE and 5G radios."