Why did Victor die?

I've always assumed it's because Gus knows that Victor was seen at the house (the house where Gale Boetticher was murdered by Jesse Pinkman) -- remember that Victor and Mike had a conversation about the fact that he'd been seen (Mike was upset at it, and Victor didn't think it was that big of a deal). Gus isn't one to leave any possibility that he could be discovered by Victor's carelessness, so he knows it has to be done.

Of course, he does it in the way that he does as a power play, hoping that the shock of it will convince Walt and Jesse to fall in line (i.e. "Hey guys, if I'm willing to kill my trusted assistant because he screwed up, do you really think I won't do it to you if it comes to that?")

There is no need for Victor to be killed. In fact for a person who takes fastidious care of his employees it is a very bad move. Victor being seen was not that big a deal. He might even have been able to manufacture Meth. At least he would have been useful as a reminder that Walter is not indispensable. There is absolutely no need for him to be killed. However, if you were writing the scene, how would you have it resolved? Gus comes in and just tells Walter to go back to work? Just admitting that he had been outsmarted? Gus picks up a cutter but then does not actually does anything with it? The writers went with the shock and drama that the sudden killing of Victor produced.

Just before Gus kills Victor, Walt monologues about how Victor is not as good of a cook, how he needs Jesse alive to help him cook, etc

Gus's subsequent actions act as a punishment to Victor for being substandard, while simultaneously yet silently "accepting" Walt's request to leave Jesse alive.

The act of Gus slicing Victor's throat demonstrates his ruthlessness and willingness to "just get the job done", which serves as a message for Walt and Jesse, that he won't accept excuses or messing around. Gus eyes them both up afterwards to ensure they understand their place and then leaves.

There are many reasons:

• Gus may have been convinced that Victor's batch would be substandard
• Victor probably needed to die anyway. He had screwed up by failing to kill Walt and had also gotten himself seen after the Gale murder
• To send a message, as we are lead to believe at the time. Either to scare Walt/Jesse or to send a message to Mike; it could even be both.

There is another possible reason mentioned in Season 5 Episode 3:

I've been thinking about Victor. All this time, I was sure that Gus did what he did to send me a message. Maybe there's another reason. Victor trying to cook that batch on his own, taking liberties that weren't his to take. Maybe he flew too close to the sun and got his throat cut. - Walt

I believe he did it

1. to scare Walt and Jesse and
2. because he was cooking below Walt's standards and
3. because he failed to stop Jesse from killing Gale.

Gus kills Victor because Victor has shown himself to be irresponsible and untrustworthy.

Victor has created loose ends, and in many ways his actions exacerbated a bad situation to the point that Walt and Jesse had to kill Gale.

I'm sure that the manner of his death is also meant as a warning to Walt and Jesse, and I'm also sure that Gus' anger at Victor wasn't a show. But either way Victor had to go.

Someone had to be killed by Gus Fring to show that he wasn't a man to be trifled with and because his plans to use Gale and eliminate Walt and Jesse had been circumvented. With only five people in the room, who else could he have killed?

1. He needed Walt - After all, Gale was backup for Walt and Gale was now dead.
2. He couldn't kill Jesse - He knew or strongly believed that Walt would not cook without Jesse and he couldn't afford to be wrong about that.
3. He couldn't kill Mike - Not only was Mike the de facto underboss of his criminal organization, he had also shown himself to a very deadly opponent and Fring knew this. In fact, it's a tossup between Walt and Mike as to the one who the most immune to Fring's anger on that occasion.
4. He obviously wasn't going to kill himself.

That left Victor.

Killing Victor offered the greatest amount of shock value with the least amount of damage to Fring and his criminal organization. Victor certainly didn't help his case by speaking as it focused Fring's attention and anger upon him. However, it's likely that he would have been killed anyway as Fring needed to make a point.

Some points from me. Victor was a very loyal and dedicated team member, and Gus being a man of reason must have had a strong motive to eliminate him. There was a pause before he killed he when he thought this through, so that's definitely not an impulse.

• Who is responsible for Gale's death? Most probably it's Victor because he is the only one from the gang who's been on the crime scene. Of course, he's been outsmarted by Walt, but for Gus this might not be an excuse.
• Victor giggled at a very tense moment + his is the one responsible, he does not understand he should not do the giggles, so for Gus this could be a sort of immature behavior which makes him look very stupid having such a team member.
• In mafia you don't start speaking before your boss in such moments, because it lowers your bosses rank. Remember how the same situation ended in the very first season with Tuco and his hitman? Even asking seems awkward, not to mention that Victor made a statement.

This is for all of you who are bringing up that this is out of character for Gus. Nobody has mentioned the thing that actually does make it in character for him. PTSD. For those of you that know the show well, you'll remember that Gus had a partner when he first tried to get into the meth business. He tried to appeal to the cartel. He liked the guy very much and was horrified when the man was killed right in front of him.

He also liked Gale. Gale was another chemist he had helped train to become his main chemist. And once again... he lost his friend and partner. Now I understand that Gus is a hardened business man. But everyone has a breaking point. And you guys are all missing one very solid reason for Gus' actions. He threw a tantrum. He was pissed off. You could see it in his face.

Now I agree also that he was sending a message not to mess with him. And I also agree that killing Victor made little sense beyond that alone. Except... we see later how well it goes when an inexperienced cook (Todd) is given full control over a lab. He starts fires, his quality is very low. We never actually see the quality of meth that Victor would have produced. We only see him performing the beginning steps in the process of making it. So honestly, I believe Gus, being as intelligent as he is and this not being his first rodeo, believes that Victor had very little potential value as the main cook of their operation. There are little steps to every process that only experience, not watching, can teach a person.

So now that we've determined that Victor is not valuable as a cook, let's discuss his value as a henchman. He just failed horribly. He failed to get to Gale and stop his murder. And really when it came down to it, Victor was watching Walt and Jesse like a hawk supposedly but what did he ever actually help? Did he analyze their behavior? Did he determine they were up to something? Did he stop Jesse skimming meth off the top of their cooks? No... when it comes down to it. He was shit, and useless as far as helping to control the situation.

So, in the end, Victor was the only disposable person there, he had just failed and had thus far failed to show any real value as more than a lackey. And then he presumes to start cooking the meth before getting the orders to do so from his METH KINGPIN. Remember, this is a businessman, but also a crime lord. He's been in this business for more than 20 years without being caught. Talk about flying too close to the sun. The man stepped out. Big time. What's next if Gus allows this to happen without consequence? Maybe Victor starts cooking extra for himself? He's already got his hands full with Walter and Jesse. Walter and Jesse have done a great job making themselves invaluable, as has Mike. So Victor is the winner. Sorry buddy, you shoulda been more cunning and useful like Mike and Walter, and you've got no protection like Jesse.

This point was addressed at the end of S05E03:

Walt: I've been thinking about Victor.

Jesse: Yeah?

Walt: Yeah. All this time I was sure that Gus did what he did to send me a message. Maybe there's another reason.

Jesse: Like what?

Walt: Victor trying to cook that batch on his own? Taking liberties that weren't his to take? Maybe he flew too close to the sun ... got his throat cut.

(My guess is that the writers probably heard the criticism about this possible plot hole in S04, and the above lines are their way of addressing it, while also depicting Walt's transformation. At the same time, the above is merely speculation by Walt and we the viewers still don't know for sure what Gus's actual motivations were.)