Now Hear This!

Well, AMD’s 10% workforce reduction (i.e. layoffs, i.e. more EEs on the unemployment line) is one way to move the company toward profitability. AMD will now be able to cut its cost by some 1,650 salaries. Motorola made a similar move last week, slashing another 2,600 jobs and putting its total layoff count around the 10,000 mark as it looks to create shareholder value. 

The two companies -- one focused on chips and one that got out of semiconductors when it launched Freescale  in 2004 -- may have more in common than would appear at first glance. Motorola has decided to split itself into two companies, separating its mobile devices business to focus on broadband and mobility and as a step toward regaining profitability. AMD could learn a thing or two from Moto’s recent actions. It’s time to consider splitting AMD, not based on its technologies as Moto is doing, but more simply from the design and costly manufacture standpoints. 

The way to profitability for AMD may be to go from being fab lite, or “asset lite” as the company likes to say, to fabless. If AMD were to sell off its fabs, it would probably take in, say, $2 billion to $3 billion for each, offering a good chunk of change to help the company pay off the debt it accumulated from its ATI purchase. Perhaps the Abu Dhabi fund, the Mubadala development company that serves as a capital vehicle for the United Arab Emirates to invest directly in publicly traded companies and has already invested $622 million in AMD for a more than 8% stake, would be interested.

AMD has also been extremely tight lipped about its asset-lite strategy. Executives avoided questions on fab plans at its December 2007 financial analysts meeting and even though New York has offered AMD more than $1 billion in incentives to build its planned fab upstate near its buddy IBM, no firm commitments have been made. We also know AMD is chummy with TSMC, the semiconductor industry’s number one foundry. Has AMD been laying the groundwork for a more inclusive partnership?

Fabless is a good option and should not be ruled out in today’s market environment. iSuppli recently made special note of how fables companies climbed in its 2007 rankings. Not only would moving to a fables model answer a big part of the “how” in questions of AMD profitability by reducing its cost structure, but it would also allow AMD to give design the proper focus it deserves. EDN senior technical editor Brian Dipert posted a comprehensive two-part series in his Brian’s Brain blog less than a week ago about the trouble with AMD’s technologies and why it continues to fall behind Intel. See “AMD: Time keeps on slippin', slippin', slippin' ...”  for his foreshadowing words. For me, though, AMD’s lack of suitable emphasis on its design can be summed up in one word, “Barcelona.” Botching Barcelona, having to admit to design issues, and delaying its launch is an extremely telling example of how AMD runs its business and why it needs a greater focus on design as a “how” to reach profitability. 

Perhaps instead of asking “how” AMD will reach profitability, we should be asking “if” AMD will reach profitability. Its poor financial state and ailing stock price make it an easy target for acquisition (does the phrase “buy low” ring a bell?). Rumors have swirled that Apple, IBM, and Nvidia could all be possible suitors. In fact, rumors on an Nvidia buy are so strong that when our own Brian played an April Fool’s joke on Brian’s Brain readers last week, headlining an entry “Nvidia acquisition of AMD re-ignites CPU market excitement,” readers reacted.

And while AMD struggles, its competitors continue to reap the rewards of opportunity. Intel and Nvidia, which both claimed additional respective market share in 2007 as AMD blundered, can expect AMD to cut back on R&D as a further cost-savings measure, reducing its chances of making any technology improvements that will allow it to continue to compete.

AMD CFO Bob Rivet in December promised profitability in Q3 2008. The layoffs are one step in that direction. But Q3 will be here before we know it. If AMD wants to stay alive, it needs to consider getting out of the high-cost manufacturing game and realigning its costs for design innovation. I expect more light will be shed on AMD’s future when it announces Q1 financial results next Thursday (April 17).  Check back with EDN for continuing coverage. Meanwhile, share your thoughts on AMD and the possibilities outlined in this blog below.

--Suzanne Deffree, Managing Editor, News