AMD Slashes Jobs, Hints at Further Cuts, With Goal of Breakeven
Advanced Micro Devices will slash 1,770 jobs in Q4 and is hinting at more cuts in 2013’s first half, with a goal of reaching breakeven by Q3 on $1.3 billion in revenue, CEO Rory Read said on an earnings call.
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The job cuts come as AMD seeks to lower its operating expenses to $450 million by Q3 2013 from $500 million in the quarter ended Sept. 30. AMD didn’t say which jobs will be eliminated, but Read hinted that its engineering work force might be spared. AMD, which expects the restructuring to produce $190 million in savings next year, is targeting increasing its operating margin to 3.5 percent from 2.8 percent in Q4, the company said.
Some analysts questioned the wisdom of the restructuring, with FBR Capital Markets analyst Craig Berger arguing that the job cuts will “make it more difficult to engineer and sell competitive products.” Despite the job cuts, FBR lowered its Q4 earnings per share estimate for AMD to a 16-cent-a-share loss, worse than many analysts’ three-cents-a-share projection, Berger said. AMD executives didn’t release gross margin forecasts. “With management’s execution questionable in our opinion and no gross margin visibility we are stepping to the sidelines during this difficult macro environment,” said Berger, who cut his rating on AMD to “market perform."
The changes come as AMD struggles with its core “legacy” PC business that includes notebooks and desktops that account for 85 percent of its quarterly sales, AMD executives said. AMD is targeting increasing the embedded business for its ICs -- automotive, industrial and gaming -- to 20 percent of its sales by late 2013 from 5 percent in the quarter ended Sept. 30, the company said. “We underestimated the speed of change in our industry,” Read said. “We expected to have several years to transform the AMD business. We must diversify beyond the traditional PC market and become a leader in fast-growing and adjacent markets."
AMD won’t totally abandon the PC business, the company said. The chipmaker landed design wins in 125 models of Windows 8 PCs that are set to launch this week, AMD said. It’s also raising its focus on ultra-thin notebook PCs including those that could be built around its 28-nanometer Kabini-platform advanced processing unit (APU) that has started sampling and will replace the company’s Brazos platform. Kabini devices each will feature up to four core processors, a next-generation graphics adapter and a heterogeneous processing and system architecture, AMD said. It also will have integrated input/output capabilities in addition to a new memory controller, it said. AMD also is developing Arm-based chips for the server market that will arrive in 2014. While AMD’s Windows 8 design will be based on its Trinity APUs, some customers haven’t “as fully committed as maybe I'd like to see,” Morgan Stanley analyst Joseph Moore said.
AMD swung to a $157 million Q3 net loss from a $97 million year-earlier profit as revenue fell to $1.26 billion from $1.69 billion. The earnings downturn came as AMD took a $100 million charge for a writedown of its inventory of A-series Llano processors for desktop PCs. Gross margins shrank to 31 percent from 45 percent.