Sunnyvale (CA) - For the past several weeks, both Charlie Demerjian from The Inquirer and yours truly have been criticized by some of our colleagues and AMD’s own PR department about the number of people we were told by industry sources that AMD is going to let go. At the end of the day, our sources were spot-on with the expectation of imminent staff cuts, but, as it turns out, the estimates of how many people will have to leave, were too conservative.
Our sources called for a 5% reduction in positions, or about 850 employees. We have no indication to believe that this information was wrong at the time we published our article, but now we hear that AMD may have increased that number to 10% or about 1600 to 1700 positions.
On a percentage basis, this number is still below what Intel announced to cut as part of its massive restructuring that began in 2006. Including sold departments, Intel so far has eliminated more than 16,000 people from its payroll (which is, by the way, also close to our initial prediction and more than 50% above Intel’s original guidance). According to its annual report, Intel employed about 86,300 people at the end of December 2007, down from about 102,500 18 months earlier.
AMD also announced that it expects Q1 2008 revenue to be about $1.5 billion, up 22% from Q1 2007, but down 15% from Q4 2007. A decline is to be expected because of the seasonal pattern, but 15% is probably much more than most financial analysts would have expected. AMD said that the steep decline is due to "lower than expected sales across all business segments." A loss for the quarter now appears to be all but certain and the question will be how high this loss will be. Based on its 2007 cost structure and the product and financial information provided by the company last year, we estimated in October 2007 that AMD would have to post sales of about $2 billion per quarter to deliver a profit.
Half a year later, we know that AMD has slashed costs, but we also heard industry sources and Intel claiming that Intel’s Xeon MP (Tigerton) processor has taken away market share from AMD’s cash cow, the 4-way and 8-way Opteron processor. Depending on much market share AMD has lost, the company may not see much opportunity to beautify its balance sheet. In the end, $1.5 billion in revenues and the thin profit margins in its current microprocessor business, combined with ATI’s struggles against Nvidia, could mean that AMD has not made much progress at all this year.
AMD expects to have the cuts done by Q3 2008 and Q3 appears to become a key quarter for the company. AMD promised that it will return to profitability by end of 2008, and it seems that executives are doing their best to achieve that - by cutting the workforce. The official financial results will be released on April 17 during a quarterly conference call with analysts.
We still wonder when AMD executives will officially announce their "Asset Lite" strategy, or "Advanced Micro Devices" and "Arab Micro Devices", as recently outlined by the Inquirer. The State of New York would definitely like to learn about that part of Hector Ruiz’ strategy. It would be interesting how shareholders will react to these announcements, since certain company executives have paid themselves stock bonuses (in 2007) that, in aggregate, would cover the salaries of thousands of employees. We doubt that will help AMD’s cause.
If you want to have fanatical followers inside the company, AMD should research what Jen-Hsun Huang did in the GeForce FX days, and what Steve Jobs did when he returned to Apple.
