In total, the company, the world’s largest chipmaker, expects to shed 10,500 workers between July 1, 2006 and mid-2007. Already 5,000 workers have left or are leaving Intel since the middle of this year, said Intel spokesperson Chuck Mulloy.

Some of those jobs were lost through Intel selling some of its non-core business units, while others were outright job cuts. A further 2,000 or so workers had voluntary left the company since July 1, either to retire or take jobs elsewhere, Mulloy said.

By the end of this year, Intel’s headcount will decline to about 95,000 and will drop to about 92,000 by mid-2007.

Chief executive Paul Otellini, said the jobs cuts were essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come, in a statement.

The restructuring is Otellini’s bid to better position Intel against its smaller but gaining rival Advanced Micro Devices Inc, which has been nibbling away at Intel’s market share. AMD also is suing Intel for alleged anti-competitive behavior and has subpoenaed some of the world’s largest chip-buying companies as part of its case.

Otellini, who took charge of the company in May as the first non-technical head at Intel in its 36-year history, announced the major operational overhaul in April. At the time, he said every business unit at the company would be evaluated.

Since then, Intel has cut 1,000 management jobs across the company and around the world. It also sold its Xscale communications and applications chip business, which mean a further 1,400 jobs, as well as parts of its telecommunications unit, eliminating a further 600 workers.

Between now and the end of the year, about 2,500 more workers will lose their jobs, mostly in marketing and IT positions, Mulloy said. Effected workers will be notified during the next month or two, he said. Jobs across various regions will be cut.

Next year, the job cuts will be more broad-based as Intel improves labor efficiency in manufacturing, improves equipment utilization, eliminates organizational redundancies, and improves product design methods and processes, according to a prepared statement.

However, Merrill Lynch analyst Joe Osha said, in a research note yesterday, that Intel has the opportunity to reduce costs more in flash memory and its non-core businesses. Intel has too many poorly focused science projects for a company with so many competitive problems, Osha wrote.

We also think that Intel has very limited ability to cut either product development or marketing costs without imperiling the business recovery the company hopes to achieve.

Intel hopes to save about $2bn next year and a further $3bn in 2008 as a result of the restructuring. This is less about $200m in severance costs for the total job cuts, Intel said.

Job cuts alone will not give Intel these kinds of savings, noted Mulloy. The company also expects to save on merchandising expenses, capital and materials.

By better using its manufacturing equipment, notably its expensive chip-making tools, and its factory space, Intel expects to save $1bn. This means loading its factories as efficiently as possible, and running its fabs at the highest-potential levels with the highest yields, Mulloy said. Intel also will bring on its newer factories faster, he added.

This, along with potential manufacturing job cuts and other cost-of-sales measures, will account for about 25% of the restructuring project’s savings next year. The rest will be to reduce operating expenses, said the Santa Clara, California-based chipmaker.

Intel hopes to cut back its costs on marketing also, Mulloy said. This would include advertising, co-marketing programs and branding programs, he said. We will gain efficiency and cost benefits from getting them more strategically focused and more efficient, Mulloy said.

This is more than just workforce reductions, although that is perhaps the most difficult task we’ve undertaken, Mulloy said. It’s the way the company operates, the efficiencies we gain and the ways we can make sure we are much more nibble than we have become over the past 10 to 15 years.