Intel's lay-offs and how they may affect start-ups in Silicon Forest

As Kat readers may have taken note, the chip giant Intel announced this week that it will lay off approximately 12,000 employees, which amount to approximately 11% of its world-wide total of 107,300 employees. Announcement of a lay-off is never pleasant, especially when we are talking about numbers as large as these are, and they add to the reported 12-month total of over 72,000 jobs that have been lost in the computer industry over the last 12 months (think job cuts at VMware, EMC, IBM, and Microsoft). Indeed, for Q1 2016, over 17,000 computer-related jobs have been lost, almost 150% more than for the comparable period in 2015.

These announced lay-offs are part of Intel’s plan to move away, belatedly perhaps, from its reliance on the personal computer industry, in favor of such new growing markets as the internet of things, data centers, gaming, and programmable chips. While the jury is still out whether Intel will ultimately succeed in this pivoting of the company in the direction of these new markets, it is presumed that these centers of R&D activity will generate a lot of Intel-originating patent and related work.

But this Kat wants to consider for a moment the R&D here and now of these announced cuts, and the way that an innovation ecosystem may be affected by substantial lay-offs. The focus is not on the Intel presence in Silicon Valley, with the region’s huge and diverse high tech work force, but on the Intel presence in the bordering state of Oregon (so-called Silicon Forest) and, in particular, its principal city, Portland. Paul Kedrosky, a well-known figure in, and commentator of, the high tech world, including as a venture-capitalist, observed this week in an interview on the program, Bloomberg Advantage, that it is in Portland, and Oregon more generally, that Intel’s move will most be felt. Consider the following numbers as reported on by the Oregonian. Intel employees 19,500 employees in Oregon. That is the single largest concentration of Intel employees anywhere. Moreover, it makes Intel the state’s largest business employer (out of an overall state population of slightly over 4,000,000 residents).

What is interesting is how Kedrosky viewed the effect of the lay-offs on the innovation ecosystem in Oregon. We typical think about innovation in terms of start-ups, rather than well-established industry giants. But in so thinking, we tend to forget that there is a relationship (dare this Kat call it “quasi symbiotic”), between Intel and start-up spin-offs. It turns out, as Kedrosky suggests, that at least where Portland is concerned, even when times were good, Intel employees would move out to create start-up companies. It appears that there was a multiplier effect taking place within the Intel ecosystem in Oregon; not only was Intel the state’s largest business employer, but it helped spawn a secondary ring of spin-offs, all to the apparent delight of venture capitalists looking for start-up investments.

Kedrosky, without going into further detail, stated that venture capitalists are now fearful that this quasi-symbiotic relationship [Merpel reminds Kat readers: this is the Kat’s term and not that of Kedrosky] is being severely impaired. Just as, on the upside, Intel’s presence had a positive secondary effect on start-up activity, the company’s pivot and concomitant downsizing may have a negative effect on future aggregate start-up activity in Oregon.

On first glance, Kedrosky’s observation goes against the commonly-expressed mantra that tough times are often the best environment to spawn world-beating new companies. Examples from HP in the 1930’s to Apple and Microsoft in the 1970’s to Uber in the current decade, are often mentioned. But this may depend upon the ecosystem. After all, as challenging as lay-offs are in Silicon Valley, it seems that there is potentially a much deeper ecosystem for an ex-employee who wishes to remain. In a notbly smaller setting, such as Portland, these possibilities are much more limited and ex-employees will be more inclined to leave. If so, one can only hope that Intel’s plans for Portland will enable the company to continue to support the quasi-symbiotic relationship that appears to have been the case all the while that Intel basked in the glory of being the world’s PC computer chip champion.