AMD to Cut 15 Percent of Workforce in Wake of Q3 Loss

Executives are hoping that cutting costs and refocusing AMD’s efforts will help the company return to profitability.

Advanced Micro Devices is cutting another 15 percent of its workforce as its looks to slash costs and regain its footing in the face of a slowing PC market that is slamming most tech vendors that are tightly tied to the industry.

The job cuts, speculated about for several days and finally announced Oct. 18, will add up to about 1,770 positions and will save the company $210 million in the fourth quarter and through 2013, and come almost a year after AMD executives slashed 10 percent of the workforce. AMD currently has more than 11,000 employees.

AMD officials said the layoffs, which will be mostly completed during the fourth quarter and cost the company about $80 million in charges, are part of a larger restructuring plan designed to cut expenses and reduce the company’s reliance on PC chips. AMD is the world’s second largest seller of PC processors, but a distant second to larger rival Intel.

The announcement of the job cuts came as AMD executives released the company’s third-quarter financial numbers, which saw the company lose $150 million on $1.27 billion in revenue, a 10 percent drop from the second quarter and a 25 percent reduction from the same quarter last year. They pointed to the global economy, falling prices and slower OEM demand as key culprits, and said revenues in the fourth quarter could fall another 9 percent.

The PC chip business currently accounts for about 85 percent of AMD’s revenues, according to CEO Rory Read. The goal is to drop that to about 40 to 50 percent of revenues, with AMD focusing its resources in other areas—the embedded device space (such as gaming, industrial and communications applications), dense servers for such environments as cloud computing, and ultra-portable computing devices such as ultrathins, tablets and entry-level notebooks, which are seeing growing sales.

Read, who took over the company about 14 months ago, said he and other AMD executives saw the various forces that were aligning against the PC market—the struggling global economy, the growing popularity among consumers of tablets and smartphones, and the anticipation of Microsoft’s Windows 8 operating system, which is due to be released Oct. 26. However, they were not prepared for how fast those trends would impact the space.

“There’s no doubt that we’re seeing significant factors … that are effecting the PC industry, and they’re happening faster than we had anticipated,” Read said during a conference call with analysts and journalists.

Analysts from IDC and Gartner said PC sales in the third quarter fell between 8 and 9 percent over the same period last year.

AMD, which warned the industry earlier this month that third-quarter financial numbers were going to be lower than expected, is not the only tech vendor that is being impacted by the downturn in PC sales. OEMs like Hewlett-Packard and Dell are being hit and are looking to expand their enterprise IT solutions businesses to help offset damage to their PC numbers. Likewise, Intel saw revenues for its PC chip business fall 8 percent in the third quarter, and is looking to aggressively move into the mobile computing space, where devices like tablets and smartphones run mostly on chips designed by ARM Holdings and sold by vendors like Qualcomm, Nvidia and Samsung Electronics.

AMD also is looking to make some inroads into the tablet space—the company earlier this month unveiled its low-power Z-60 accelerated processing unit (APU) aimed at tablets running Windows 8—but is dealing with fewer resources than Intel.

Read is hoping the combination of cost cutting and refocusing on what he sees as growth areas will help turn around the company. He said he is interested in seeing the customer adoption rate of Windows 8 devices—the OS is optimized for tablets—and Lisa Su, senior vice president and general manager of AMD’s global business units, said during the call that the company is expecting about 125 Windows 8-based system designs running on AMD chips. AMD also next year will be rolling out its Kabini processor, which will replace the current Brazos APUs.

Read also noted that the shrinking PC market is “dominated by a single player in a big way,” leaving little room for growth for AMD.

Similarly, Read said the embedded device space promises more growth than the PC space, and is an attractive one for AMD’s low-power APUs. The company already has business lined up—though Read declined to name any of the customers—and the embedded business should account for 20 percent of AMD’s revenues by the fourth quarter of 2013, he said. Currently, 5 percent of the company’s revenues come from the embedded space.

AMD executives also are looking to gain business in servers aimed at dense data center environments, such as Web 2.0 and cloud computing. The company not only will leverage its own x86 chip technology, but also third-party chip technology. Already AMD is integrating ARM’s TrustZone security technology into some APUs, so leveraging ARM’s technology in server chips isn’t a big leap. In addition, AMD will look to leverage SeaMicro—as micro-server maker that AMD bought earlier this year and that brought with it its Freedom Fabric technology—to push forward its server strategy, Su said.

“We will continue to look at how we incorporate third-party [technology],” she said, adding that such integration will come in 2014. It coincides with the timeframe ARM officials have put out for its ARM v8 architecture, which will offer many of the features—from 64-bit capabilities to greater virtualization and memory support—that are important for the server space.