AMD to Cut 1,100 Jobs Due to the Economy

Advanced Micro Devices is preparing to cut an additional 1,100 jobs as the chip maker struggles in an economy that has seen both business buyers and consumers cut down on their purchases of desktops, laptops and other hardware in the last three months.

In addition to the latest round of job cuts, AMD announced Jan. 16 that the company's two top executives, CEO Dirk Meyer and Executive Chairman Hector Ruiz, would have their base pay temporarily slashed by 20 percent while other employees would take pay cuts of 10 or 15 percent. AMD also announced that it would temporarily stop contributions to its employees' 401(k) accounts.

The pay cuts and job cuts will start in February. After that, AMD will revisit the temporary pay cuts and 401(k) contributions every quarter, a company spokesperson told eWEEK.

"I can confirm that as a result of the continuing global economic downturn, we have determined that we need to take difficult, but prudent, actions designed to reduce our costs," Phil Hughes, an AMD spokesperson, wrote in an e-mail.

Right now, AMD has about 12,000 employees worldwide and the latest reductions equal about 9 percent of its total work force. That number does not include those employees that will go to work for The Foundry Company, the spinoff of AMD's manufacturing facilities announced in 2008.

AMD also announced in December 2008 that it would eliminate 600 positions.

The latest announcement from AMD is another sign of how the recession in the United States and the sluggish global economy are affecting the IT industry as businesses continue to cut back their purchases of desktops, laptops, server systems, networking equipment and other hardware. A report from Forrester Research suggests that businesses will continue to reduce their IT spending in 2009 and the industry will not recover until at least 2010.

In addition, companies such as Intel, AMD and Nvidia are dealing with the fallout of reduced consumer spending on items such as laptops, which helped fuel the PC market for the last several years.

Intel, AMD's main rival in the x86 processor market, announced Jan. 15 that its fourth-quarter 2008 profits had sunk to $234 million or 4 cents per share after the company posted net revenue of $2.3 billion in the fourth quarter of 2007. Nvidia also cut its fourth-quarter revenue forecast by 40 to 50 percent.

On Jan. 22, AMD will announce its own fourth-quarter financial results. Wall Street analysts are calling for a loss of 54 cents a share with revenue of $1.23 billion.

AMD's financial problems date from an earlier time and the current financial crisis has hampered the company's efforts to increase its profits. Part of the problem stems from AMD's purchase of graphics maker ATI, which AMD paid $5.4 billion for in 2006, and the company has been forced to write down the value of its investment ever since.

In addition, AMD struggled to release its 65-nanometer, quad-core Opteron processor in 2007, which allowed Intel to take market share away from its smaller rival. AMD did bounce back in 2008, when it released the 45-nm version of the chip on time and without any technical problems.

Since taking control of the company, Meyer has announced that AMD would concentrate on its core businesses of processors, graphics and chip sets and the chip maker plans to focus more on consumers and small and midsize businesses.

The latest round of job cuts should not affect AMD's efforts to spin off its manufacturing facilities into the new company, Hughes said. That deal is expected to close sometime in the first quarter of this year.

Besides the job cuts that will start in February, AMD will reduce the base pay for employees who hold the titles of vice president or above by 15 percent. For those employees not eligible for overtime, AMD will reduce their salaries by 10 percent.