As anticipated, Intel has announced layoffs as part of a larger restructuring plan that envisions some 10,500 employee layoffs by mid-2007 and $5bn (about £2.7bn) in savings by 2008.

The computer chip maker said the restructuring will help save $2bn (£1.1bn) in expenses in 2007 and $3bn (£1.6bn) annually in 2008 and beyond.

The move, announced late on Tuesday afternoon, follows rumours of upcoming cuts that began circulating late last week.

The company said that a large proportion of the savings will come from a combination of non-workforce-related steps and a significant reduction in Intel's workforce, which stood at about 102,500 workers at the end of the second quarter of this year.

The workforce will shrink to about 95,000 by the end of this year though layoffs, attrition and previously announced actions, and will then drop to about 92,000 by the middle of 2007. Intel will also cut back on merchandising expenses, capital expenses and materials.

"These actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come," Paul Otellini, Intel's president and CEO, said in a statement.

Most job reductions this year will occur in management, marketing and IT functions, as well as from previously announced sales of businesses, according to the company. Next year, the reductions will be more broadly based as Intel boosts labour efficiency in manufacturing, improves equipment utilisation, eliminates organisational redundancies and bolsters product design methods and processes, the company said.

The firm expects severance costs to total approximately $200m (£106m).

Arnold Reinhold, an analyst at Hurwitz & Associates, said on Tuesday that Intel's direction is clear. "The short answer is that it's been under a lot of pressure from [AMD] and it's got to get to a point where it can make money."

Rob Enderle, principal analyst at Enderle Group, said the problem with Intel's announcement is that the company's staff cuts have been coming piecemeal – meaning this may not mark the end of layoffs. A similar situation occurred at HP when then-CEO Carly Fiorino launched several rounds of layoffs, leaving the remaining workers with only a vague idea of the company's direction, Enderle said.

When Mark Hurd took over at HP, he implemented one round of layoffs, made it clear that the time for rebuilding was upon the company, and set out to make it happen, Enderle said. "Now [HP is] really taking the battle to Dell," he said.

At Intel, the several rounds of layoffs do not inspire confidence in the remaining employees or with business partners, he said. "I'm not convinced that this will do what [Intel] expects it will do. Cuts are cost-containment only. They don't help the overall productivity and competitiveness of a firm. You lose a lot of people, then you have to recover from that loss.

"AMD's going to have a field day cherry-picking Intel for a while."