AMD to Cut 15% of Workforce This Quarter, Plans Consolidation of Sites

AMD Announces New Restructuring Plan as Sales Hit New Low

by Anton Shilov
10/18/2012 | 07:01 PM

Advanced Micro Devices on Thursday said it would reduce its headcount by as much as 15% (or by 1755 employees) and will also consolidate its sites as it now enters the second restructuring in a year. Sales of the chips are dropping these days, which is why the firm needs to cut its cost dramatically here and now.

Hard Times

 

AMD today announced revenue for the third quarter of 2012 of $1.27 billion, a net loss of $157 million, or $0.21 per share, an operating loss of $131 million and gross margin of 31%. For the fourth quarter of 2012 the company expects revenue to drop 9% sequentially, ±4%. Operating expenses are projected to stay flat with the current quarter.

“The PC industry is going through a period of very significant change that is impacting both the ecosystem and AMD. It is clear that the trends we knew would re-shape the industry are happening at a much faster pace than we anticipated.  As a result, we must accelerate our strategic initiatives to position AMD to take advantage of these shifts and put in place a lower cost business model. Our restructuring efforts are designed to simplify our product development cycles, reduce our breakeven point and enable us to fund differentiated product roadmaps and strategic breakaway opportunities,” said Rory Read, president and chief executive of AMD.

New Restructuring

In a bid to overcome today’s challenges, AMD AMD is putting in place a business model to break even at an operating income level of $1.3 billion of quarterly revenue. The company is targeting to achieve this by the end of the third quarter of 2013. AMD’s restructuring plan will include a 15% workforce reduction, which is expected to be largely completed already in Q4 2012, and site consolidations. AMD implements the new plan to improve cost structure and to enhance the company’s competitiveness in core growth areas, including low-power and ambidextrous architectures.

“Our restructuring efforts are decisive actions that position AMD to compete more effectively and improve our financial results. Reducing our workforce is a difficult, but necessary, step to take advantage of the eventual market recovery and capitalize on growth opportunities for our products outside of the traditional PC market,” said Mr. Read.

While it is obvious that AMD needs to either save or borrow the money somewhere, it is pretty evident that without people AMD will not be able to deliver high-quality products. Just a little after the merger between AMD and ATI Technologies, AMD’s headcount was 16500 (of which around 2800 were employed at the fabs in Dresden, Germany), which means that the company needs headcount of around 13700 in order to create and sell leading-edge accelerated processing units, central processing units and graphics processing units. Meanwhile, the company will now have less or around 10 000 people, which may simply be not enough to deliver quality products in time.

AMD’s Q3 of 2012 in Details

Computing Solutions segment revenue was $927 million, down 11% sequentially driven primarily by a weaker consumer buying environment impacting sales to OEMs as well as lower ASPs for microprocessor products across all geographies. Computing Solutions operating loss was $114 million, down $196 million from the previous quarter net income primarily due to lower revenue and the $100 million inventory write-down.

Client product revenue declined 11% sequentially due to lower unit shipments and ASPs in the quarter especially for desktop processors. APU shipments were flat as a percentage of AMD’s client products. Server processor revenue declined sequentially due to lower unit shipments and ASP quarter-over-quarter. Chipset revenue declined sequentially primarily due to lower unit shipments in the quarter.

Graphics segment revenue was $342 million, down 7% compared to the prior quarter. GPU revenue was down 14% sequentially due to lower unit shipments to OEMs partially offset by higher channel sales. GPU ASP was up compared to the prior quarter thanks to continued transition to Radeon HD 7000-series with GCN architecture. Graphics segment operating income was $18 million, down $13 million from the prior quarter primarily due to the decline in revenue.