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Friday, June 22, 2018

MF Intel CEO Resignation Raises More Questions

Recent news regarding about Intel Corp. CEO Brian Krzanich informed the public that BK resigned from his position, voluntarily. In view of of the company's record while under the tenure of BK, we believe that this "surprise" resignation was due to multiple factors and was a lot more predictable than not. The swift way in which the event was announced and executed, indicates that Intel Corp. is doing its best to put maximum distance between BK and the company, more than likely because more serious revelation are about to see the light of day, very soon.
  • So far we know that multiple law suits have been filed against Intel Corp. as consequence of the multiple security flaws, found inside Intel's advanced microprocessor architecture that have been discovered by outside security experts. These law suits will have potentially detrimental effect on the company's revenue stream.
  • We know that the Federal Government is actively investigating Intel Corp. for illegal workforce manipulation and age discrimination charges. According to our sources, this investigation has been significantly expanded in recent months. The results of this investigation, which is already more than two and a half years along the way, are bound to be significant, both in terms of company image and monetary cost.
  • BK himself is facing investigation regarding his sale of millions worth of his stock options, while having first class access to propriety information, regrading the severity of security flaws in Intel Corp. microprocessor architecture and while being able to fully assess the corresponding risks to the company stock valuation.
  • The company's announcement that its 10nm manufacturing will not bear fruit until later in 2019, serves as a clear indication that something is awfully wrong with with the way that the company operates. Industry veterans, including myself, assess that the execution problems are not purely technical in nature, but rather have lot to do with chaos within the ranks, due to absence of leadership and expertise. Intel Corp. lost many highly experienced employees due to laying off about 1200 employees in 2015 and 12,000 in 2016, besides forcing thousands of veteran employees to retire. Apparently, the payroll savings in prior years are now costing a fortune in reduced productivity and chaos within the company ranks. To be fair, Intel Corp. annual reports, published over the last few years, stated the risks that such layoffs might bring about; however, management under the leadership of BK decided to take the risk, nevertheless!


It seems like the issue of fraternization, could have been handled with finesse, should BK's functional value in the eyes of the Board of Directors, was in order. The Intel Corp. PR machine could have come with subtle declarations and very little fanfare (like announcing a transition period for the CEO). Such was the case in the past when company executives were involved in quandary of various sorts. Typically, they were put to pasture (or sent to Siberia...) for a few months before quitting their job. Switching titles between President, President Emeritus, and CEO, was also common tactic to contain such moves. However, BK, more than any other Intel CEO set himself at the center of a lot of PR campaign, and many public personal appearances in what could only be described as the Trumpian Way. Apparently, seeking the lime light came home to roost, when the Board finally decided to cut their losses with him, in view of public scrutiny of company performance and growth predictions, relative to Intel's industry competitors.

In spite of admitting to the shortsightedness and the missed opportunities in the smart phone market, switching to other sources of revenue to replace the PC market derived income, the company execution remained very slow. Instead of demonstrating true leadership by example, BK elected to run the company as a dictator, eject many of his coworkers and tens of thousands of experienced employees from the company and in the process demolished the internal, productivity culture that was known until then as "Intel Culture".

Generally, Intel Corp. under the leadership of BK traveled through a process of organizational collapse since BK became CEO in 2013. The latest revelations about production line failures and inability to deliver 10nm high volume products, is a symptom of such organizational collapse. Intel Corp. rapidly lost it position as the world's leading semiconductor manufacturer to Samsung and its fledgling merchant Fab business never took off in a substantial way.

BK demonstrated significant lack of trust in veteran company employees, a fact that is proven by the following points:
  • BK drove the company to layoff tens of thousands of veteran employees and forced additional thousands of experienced employees to retire. No attempt was done to invest in employee retraining or reassignment. At the same time that Intel Corp. laid off a massive number of employees, the company also recruited an equal number of inexperienced new employees with foreign citizenship, many of them through H1B visa sponsorship and F1 to OPT conversions. This resulted in vacuum within the ranks, due to shortage of experienced leadership and a complete decimation of the "Intel Culture", a culture of taking responsibility, effective problem solving and operating with open communication and mutual trust. Newcomers, many of them recently arriving from countries that are not compatible with "Intel Culture", had no means to learn and follow by example, because the ranks were void of the older and experienced employees.
  • Due to his perceived notion about difficulties in managing the lower ranks, BK elected to invest tens of billions of dollars, into purchasing two outside companies, Altera and MobilEye for ridiculously overpriced valuations. The jury is yet to decide if these purchases were justified in any way; however, through this approach, BK's disdain to take charge and lead his own employees became apparent.
  • In 2015, BK declared the 1200 employees who were laid off by the company as "Lowest Performers". He did this in an open forum of employees, which created an enormous uproar inside the company. No attempt was made to correct the statement or apologize to the employees. Instead, Intel Corp. banned these employees from being rehired for their lifetime.
  • While trying his best to inflate his PR image, BK painted himself as a champion of female participation in the workforce. In January 2015 he announced that the company will spend $300 million on a new “diversity in technology” initiative. He also appointed his alleged girlfriend Danielle Brown, who was once his "technical Assistant" as the company "Chief Diversity Officer", a position that did not exist until then. Suspicious graft? You decide. Interestingly enough, the 1200 employees who were laid off in July 2015, received along with their "pink slip" a message from CEO BK, declaring that their layoff was called for due to the need to save $300 million, supposedly due to forecast of flat revenue. So it seems like BK was determined to promote his PR agenda by arbitrarily laying off veteran employees, and replace them with "diversity candidates". This would have been perhaps acceptable, besides that many of the women hired were foreign citizen spouses of H1B visa holder workers who stayed in the U.S. under H4 visas. So much to serving equality in diversification. According to the Economic Time of IndiaMore than 90% of such spouses are Indians. According to a recent report of the Migration Policy Institute, the US has issued EADs to more than 71,000 spouses of H1B visa holders, as of early 2017.
Workforce manipulation shenanigans and publicity stunts for hiding self serving nefarious agenda will remain the characteristics of Brian Krzanich career at Intel Corp., as well as his unique legacy of being the first Intel CEO to break Moor's Law. Though BK PR blurbs attempt to present the person as an "engineer" who runs a large technology company, people that knew BK at the beginning of his Intel career, told me that Brian had a very short stint in chemical engineering at the Albuquerque Fab, after which he immediately became a manager. Most of his time at Intel, BK spent at promoting his career, managing people and organizations and NOT doing actual "engineering" work. This could explain, at least in part, why real engineering and organizational problems are plaguing Intel Corp. as of late, since the CEO was probably not being able to understand what was broken in the system and what was necessary to fix it, while his personality prevented him from seeking good advice from either inside or outside the company.

Tuesday, June 5, 2018

Student Loan Debt Reached All Time High of
$1,521,019,350,000
in Q1 of 2018


Student Loan Debt Reached All Time High of $1,521,019,350,000 (more than 1.5 Trillion dollars)  in Q1 of 2018. Consequently, outstanding student debt currently exceeds auto loan debt ($1.1 trillion) and credit card debt ($977 billion). Considering that 42% of people who've gone to college took out debt, this number has high significance on the future of our economy and the future welfare of young families. According to the College Board, "In 2015-16, the 60% of bachelor’s degree recipients from public and private nonprofit institutions who borrowed graduated with an average of $28,400 in debt"

A recent FRB Board of Governors (FRB-BOG) report on the Economic Well-Being of U.S. Households in 2017, published in May 2018 informs us about the student debt situation:

Over half of college attendees under age 30 took on some debt to pay for their education. Most borrowers are current on their payments or have successfully paid off their loans, although those who failed to complete a degree and those who attended for-profit institutions are more likely to have fallen behind on their payments. • Among those making payments on their student loans, the typical monthly payment is between $200 and $300 per month. • Nearly one-fourth of borrowers who went to forprofit schools are behind on their loan payments, versus less than one-tenth of borrowers who went to public or private not-for-profit institutions.


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As the table below shows, many families have taken debt to finance education of their children and/or grandchildren. This creates a "spillover effect" on debt ownership that continues to burden older adults, even after their offspring have become independent adults.

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Here are some interesting anecdotes quoted from the same FRB-BOG report:
  • Nearly 25 percent of young adults under age 30, and 10 percent of all adults, receive some form of financial support from someone living outside their home.
  • Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money. This is an improvement from half of adults in 2013 being ill-prepared for such an expense
  • Over one-fifth of adults are not able to pay all of their current month’s bills in full.
  • Over one-fourth of adults skipped necessary medical care in 2017 due to being unable to afford the cost
  • Nearly half of adults age 22 and older currently live within 10 miles of where they lived in high school, but those who have moved farther from home are more likely to be satisfied with the overall quality of their neighborhood.
  • Out-of-pocket spending for health care is a common unexpected expense that can be a substantial hardship for those without a financial cushion. As with the small financial setbacks discussed above, many adults are not financially prepared for health-related costs. During 2017, over one-fifth of adults had major, unexpected medical bills to pay, with a median expense of $1,200. Among those with medical expenses, 37 percent have unpaid debt from those bills. In addition to the financial strain of additional debt, over one-quarter of adults went without some form of medical care due to an inability to pay.
  • Those with less income are more likely than others to forgo medical care due to cost. Among those with family income less than $40,000, 39 percent went without some medical treatment in 2017. This share falls to 25 percent of those with incomes between $40,000 and $100,000 and 9 percent of those making over $100,000.
  • Over the past several decades, the rate at which Americans move—both short distances within states and longer distances across the country—has steadily fallen. This reduction in geographic mobility also fits within a pattern of less job switching, more generally, or reduced labor market fluidity.
I highly recommend reading the full FRB-BOG report for those of you who are concerned about the future of our economy and the welfare of our general population.


All the best,

--Dr.Flywheel

References:

Saturday, May 26, 2018

The Federal Government is Investigating Intel Corp.
for Age Discrimination Violations

Recently published articles in the Wall Street Journal and the Oregonian web site, report that the Equal Employment Opportunity Commission (EEOC) is conducting an expanded class-level investigation regarding age discrimination complaints that have been filed with the EEOC against Intel Corp.

The Wall Street Journal (WSJ) was the first news organization to report about the ongoing investigation in an article written by Georgia Wells, entitled: Intel Faces Age-Discrimination Claims. The WSJ article mentions that multiple complaints have been filed with the EEOC in conjunction with several rounds of massive employee layoffs over the last three years. The fact that the EEOC would continue an investigation almost three years after a reported violation indicates that the reported allegations are substantial, in spite of Intel Corp. denial of the charges.

The Oregonian news organization expands the coverage on the subject matter in an article written by Mike Rogoway entitled: Intel under investigation for alleged age discrimination. Rogoway, who covered the Intel Corp. massive employee layoffs back in 2015 and 2016 also provided statistical charts showing a clear correlation between an employee age and their odds of being selected for layoff. In this recent article, Rogoway provides a copy of a previously published chart from 2016, demonstrating the very clear age discrimination factor in the 2016 layoffs. Similar charts are available for the 2015 layoffs.

Intel Corp. 2015 Layoffs (click on image to enlarge)


Intel 2016 Layoffs (click on image to enlarge)

Publicly available information also demonstrates that while Intel Corp. was laying off thousands of its current employees, the company was actually acquiring new employees by the thousands. Many of these employees came in via Intel corp. sponsorship of H1B visas, H4 spousal work visas, "Green Card" sponsorship and F1 to OPT work permits. All of these additions to the workforce involve importation of foreign workers who are at the mercy of Intel Corp. for continued stay and employment in the U.S. In other words, Intel Corp. was actively replacing older workers with imported slave labor.


Intel Corp. Number of employees from Annual Report
(click on image to enlarge detail)

As can be seen from the above information, taken from the Intel Corp. 2016 Annual Report, The number of employees reported at the end of 2015 was 107,300, or about 600 more employees then reported in the previous year. However, since about 1200 employees were laid off mid-year, in July 2015, the the end-of-year number shown in the Annual Report actually represents a gain of 1800 employees relative to the previous year. This gain of 1800 new employees acquired before 2015 year end, contradicts Intel CEO's announcement to employees that the July 2015 were necessary to save on expenses "due to forecast of flat revenue"! Throwing experienced (and older) employees off the bus in order to replace them with cheaper newcomers, is the more likely explanation.

Similarly, in 2016, Intel Corp. laid off about 12,000 employees, yet the difference between the numbers reported for the end of 2016 are 106,00, thereby reflecting an effective gain of 10,700 employees  (106,000 - (107,300 - 12,000)) = 10,700.

Where did Intel Corp. acquire the replacement employees? According to a recently published Pew Research Center report: "By the end of the 2004-2016 period,  there were a total of 1,474,000 OPT approvals and 1,473,000 initial H-1B visa approvals".

Layoffs of older U.S. citizen employees not only manifests employment costs savings due their higher salaries, but also cuts on the cost of medical insurance expenses for a self insured company like Intel Corp. It is taken for granted that medical insurance costs tend to rise with the age of older employees and their dependents. If induction into employment of almost 3 million imported slave laborers in the high tech sector is not a significant economic factor in this lucrative sector of the U.S. labor market, what is? 

Intel Corp. attitude towards lowering the cost of labor led company management to commit law violations by conspiring, along with Apple, Adobe and Google to halt competition for employee recruitment in the Bay area and by doing so curbing potential employee pay escalation. The company was engaged in this practice for over a decade since 2001. Court records show that Intel Corp. was forced to settle its ill behavior with its employees, following a court ruling in 2013 (see United States District Court of Southern California - San Jose, Case No. 11-CV-02509-LHK).

Taking the significant risk of engaging in an anti-competitive illegal activity is a clear indication of the high priority that  company executives and the board of directors gave to curbing payroll costs. Clearly, Intel Corp. never refrained from its quest to curb employee compensation and was looking for every avenue to achieve its goals. The evidence points to systemic changes in the company's HR practices, enacted by company executives to get rid of older workers and replace them with cheaper workers. The 2015 layoffs, in which about 1200 employees lost their jobs, seem to be a small scale "experiment" that was meant to serve as a learning tool for company executives before executing the "magnum opus", the massive layoffs of 2016.

While Intel Corp. is not the only company to utilize the F1 to OPT loophole to circumvent the H1B visa quotas, utilization of such loophole is certainly one of the tools that the company utilizes to recruit cheap, captive workers. Public records show that Intel Corp. was the number one company to sponsor F1 to OPT foreign worker visas, with twice as many records registered as Microsoft corp. (see chart below).

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Both the WSJ and the Oregonian articles provide new exposure to issues that we have been covering in this web site for the last two years. We encourage our readers to refer to several of our previously published articles, including:
Further recent information regarding the ill practices that high tech employers are using to substitute older workers with cheaper workforce are covered by Peter Gosselin in these ProPublica articles:

All the best.

--Dr.Flywheel



Sunday, May 13, 2018

The Cheap Labor Loophole
OPT is the Name of the Game

Over the last three years I have been looking at the systemic abuses of F1 visa to OPT conversions. OPT, which euphemistically stands for "Optional Practical Training" is one of the major loopholes that large tech employers are using to circumvent the H1B visa caps while recruiting cheap and captive foreign workers residing within the United States. This loophole facilitates major layoffs of older (and more expensive) domestic employees and subsequently, replacement of these employees with cheap (entry level) foreign employees, using the OPT program for stay/work visa extensions.

Recently, the Pew Research Center published a comprehensive report on the subject of F1 to OPT visa conversion program. This program, driven mostly through the lobbying efforts of large High-tech employers continues to increase in size, completely unchecked.  The Mercury News outlet published a summary of this report in the latter part of this week. As you can see from the article referenced below and the PEW Research Center report, taking advantage of the OPT loophole, has become a standard operating procedure for many high-tech companies. The number of F1 (student visa) holders converted to OPT has grown 400% between 2008 and 2016, as shown in the chart below.

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Note that foreign workers who remain in the U.S. under the OPT program, are effectively, "indebted workers". They are being paid low wages and they are totally dependent on the graces of their employer, to maintain their residence and work permit. This makes them "ideal" target for exploitation. Employers would simply be "stupid" to not take advantage of this loophole to reduce the cost of labor. In the meantime, older domestic workers continue to be laid-off in droves.



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As can be seen from the chart above, Intel Corp. is one of the top companies taking extensive advantage of the F1 visa to OPT conversion loophole. Actually, as the chart above shows, Intel Corp. is No. 1 on the chart, leading all the employers listed above, including Microsoft Corp.

Without a doubt there is a price to pay when a company only focuses on cutting expenses and gets rid of its more experienced (however, more expensive) workers. In the case of Intel Corp. there is no reason to guess where this executive management policy fails. The writing is on the wall for Intel Corp. has been there since the 2015 mass layoff. Recent news about the 10 nm production line failures (see references below) serve as indicators of much more substantial problems to come. The company's ability to execute has diminished significantly, following the 2015 and 2016 massive employee layoffs.


The Mercury News outlet covered the OPT stay/work visa conversions loophole in a recent article, which is mostly based of the Pew Research Center report.

This is a quote from the Mercury News article referenced below:

OPT has caught the attention of critics pushing for reduced immigration. John Miano, a fellow at the Center for Immigration Studies, called the 2008 STEM extension a “scheme” by Microsoft to “circumvent the H-1B quotas.” The program started out giving work-experience opportunities to foreign students but has since been “transformed into a full-blown guestworker program whose stated purpose is to provide labor to American business,” Miano wrote in a September blog post for the center

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Clearly, the numbers shown on the map above speak for themselves. It is difficult to come to any other conclusion other than that the OPT program is pandering to the interests of high tech employers, by supplying access to cheap foreign labor, at the expense of domestic workers.

The Pro Publica article: CUTTING ‘OLD HEADS’ AT IBM, covers the multitude of ways in which older employees in the high-tech sector are loosing their jobs to foreign workers, through a variety of legal loopholes and shenanigans committed by Corporate America.   

When we examine the growing trends in the high tech industrial sector, of laying off older employees and replacing them with cheap and indebted guest workers, it seems that the OPT program lost its original purpose and de facto, under the intense lobbying of big business, was transformed into a U.S. Government sponsored, older worker mass displacement program!

--Dr. Flywheel

References: