In the midst of a not-so-pleasant economic situation in Egypt, Intel made headlines last week. A number of online news sources reported that the company’s office in Egypt is shutting down.

Intel was fast to deflect rumors that it's closing its Egyptian office due to economic woes, asserting that the company “is committed to the Egyptian market,” and that only the engineering and research & development business units have been shut down. “We have employees from other Intel business teams in Egypt,” the company said in a statement.

Concerned Egyptian internet activists blamed the current political situation in Egypt for the company’s move. But Intel insists that their actions are purely organizational business decisions. “To be absolutely clear our decisions are being made to improve the company and they have nothing to do with the political situation in Egypt or anywhere else,” the company’s statement continued.

From an industry analyst’s perspective, the company’s point of view seems valid. A week earlier, Intel also announced plans to shut down its assembly and test site in Costa Rica, cutting 1,500 jobs.

I got in touch with Karim El Fateh, Intel Egypt’s country manager, who told me that Intel’s Platform Engineering Group (PEG) and Intel Labs have redefined the priorities to better address tighter operational budgets. “Co-location of teams where the new combined teams have critical mass, and limiting the number of sites per project are factors in meeting new business demands,” he said.

Intel employees currently working for Intel Labs and the engineering group in Egypt will be impacted by the decision.

In March 2011, Intel acquired the Egyptian company SySDSoft, for designing communication softwares, hiring 120 of the company’s local talents. The deal is thought to have helped Intel integrate LTE technology in a wide range of its mobile products.

Many of these engineers will find themselves jobless as Intel implements its decision. Ahmed El Arabawy, SySDSoft’s co-founder, expressed his disappointment on his Facebook page: “Very Sad News. The end of a dream. Intel Shuts Down IMC (previously SySDSoft). That was one day my little baby. Now it is gone.”

El Fateh, Intel’s Egypt country manager, assures us that Intel will be opening new employment opportunities in Munich and Bangalore. “For employees with critical skills, we will seek to assist their retention,” he says. “Impacted employees where we are not able to offer a new role will be offered a package in the context of a mutual separation,” he adds. He anticipates the process will take several months to conclude.