AMD slashes 10% of workforce

AMD will lay off some 1,650 employees by the end of Q3 as it seeks to adjust its cost structure and reach profitability. AMD has also downgraded its Q1 revenue estimates to $1.5 billion, a 15% decline from Q4 2007.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 4/7/2008

Advanced Micro Devices will lay off 10% of its staff  by the end of Q3, the company announced after today’s stock market closing bell.

The Sunnyvale, Calif.-based MPU maker made the announcement as part of an update on its Q1 numbers. In doing so, AMD said it expects revenue for the March quarter to be down 15% sequentially, but up 22% year over year, for total sales of $1.5 billion. In stark contrast, AMD’s chief rival Intel Corp has projected Q1 revenue between $9.4 billion and $10 billion.

AMD said the revenue decrease is “due to lower than expected sales across all business segments.” AMD had previously stated Q1 revenue would decline in line with seasonality. Gartner Inc this morning estimated Q1 semiconductor sales will show a seasonal decline of 7% from Q4 2007 results, once final data for the quarter is in.

Separately, Lehman Brothers this morning issued a report on AMD’s Q1 stating concerns on the company’s ability to maintain its market share and to sustain average selling prices given its delayed ramp of both Barcelona (AMD’s quad-core 65-nm server processor) and Phenom (AMD’s quad-core 65-nm desktop processor).

“Overall, it is our opinion that management’s execution on efforts to reduce operating expenses (i.e., strategic headcount reductions, fab outsourcing, etc.) and also restructure the current approach to manufacturing (by executing some form of ‘Asset-Smart’/fab-lite program), combined, are integral to the company’s return to profitability,” Lehman semiconductor market analyst Tim Luke wrote in a research note. “However, while we acknowledge management has indeed taken steps to reduce operating expenses and view any incremental color on the company’s widely anticipated ‘Asset-Smart’ program as a potential catalyst for the stock, we continue to see risk to the company’s Barcelona server ramp (given missteps with previous product initiatives).

“Furthermore, with the absence of clock speeds above 2.5 GHz in the initial family of Barcelona B3 chips when compared to Intel’s product stack, which includes speeds up to 3.2 GHz at thermal envelopes below 90W (or the mainstream of the server market), we believe Intel may be better positioned to take share of the near-to-intermediate term. This remains a key concern of ours as we see AMD’s successful ramp of Barcelona as one of the more important factors to improving fundamentals,” Luke said.

To comment on this news and the state of AMD see, "How will AMD reach profitability? Try going fabless."

After analysts cut estimates for Q3 and full-year 2007 expectations in September because of AMD’s late Barcelona launch, the company publicly and apologetically admitted to botching Barcelona at its December analyst day in New York. At that time, company CFO Bob Rivet promised that AMD would return to profitability in Q3 2008. AMD said today that the job cuts come as it attempts to adjust its cost structure. As a result the workforce reduction, AMD expects to record a restructuring charge in the Q2, the details of which are still being finalized.

According to AMD’s annual report filed with the Securities and Exchange Commission in February, as of December 29, 2007, the company had approximately 16,420 employees. Based on that number, today’s announced layoffs will affect approximately 1,650 employees.