Arik Hesseldahl

Recent Posts by Arik Hesseldahl

AMD Confirms Job Cuts of 15 Percent, Swings to Quarterly Loss

Chipmaker Advanced Micro Devices just reported earnings, and confirmed what AllThingsD reported last week, that another round of significant layoffs is afoot.

The size of the cut, amounting to about 15 percent of the current headcount, isn’t quite as aggressive as the 30 percent some sources initially suggested to us last week, but is more in line with what a third source I talked to last week told me was more likely. I’m told by sources familiar with AMD’s decision-making process that more aggressive cuts were indeed on the table for consideration as recently as a few weeks ago.

At 15 percent, the cuts would amount to somewhere between 1,665 and 1,755 people. I’ve seen two figures for AMD’s current headcount: One says 11,100 and the other says 11,700, hence the discrepancy.

The cuts are necessary, the company says, to bring about operational cost savings. AMD says it expects to save $20 million in the fourth quarter of this year and $190 million in fiscal 2012. For reference, operating expenses (the combined cost of R&D plus marketing, general and administrative costs) in 2011 were a little shy of $2.5 billion, or about 37 percent of revenue. AMD says it will take an $80 million restructuring charge in the fourth quarter.

The cut would be the second of any size since Rory Read took over as CEO at AMD last year. The company went through another round of layoffs amounting to 10 percent, or about 1,400 workers, 11 months ago. And if people aren’t being fired, they’re leaving on their own power for new jobs.

Read has brought in a team of business consultants from McKinsey & Company and BCG (the former Boston Consulting Group) to advise the company on how to fix its business model. McKinsey’s role is said to involve identifying and handling the job cuts. BCG’s role is said by people familiar with the situation to be consulting on what has been described as a “grand strategy” to take the company forward.

The company also reported its quarterly results, which, as it telegraphed last week, were downright depressing. AMD swung to a $157 million loss on sales of $1.27 billion, down 10 percent from the year ago period. It amounted to a per-share loss of 20 cents on a non-GAAP basis. Gross margin was 31 percent.

AMD has essentially been at sea since the prior CEO, Dirk Meyer, resigned suddenly 20 months ago. The company already faced some significant headwinds, not the least of which is competing with rival Intel. Meyer was said to have disagreed with directors over which strategic direction to follow. Chairman Bruce Claflin, a former 3Com CEO, is said by people familiar with the circumstances to have quarreled with Meyer over a perceived need to invest in chips for mobile devices. Meyer resisted, arguing the company needed one more year of business stability before embarking on a significant new product direction.

AMD is as yet no closer to having a presence in the mobile chip arena, though in August it hired Jim Keller, the former head of Apple’s iPhone and iPad chip design operations, so it is taking steps in the right direction.

The longer-term question for AMD is whether it can hold on long enough to its bread-and-butter business of supplying chips to PC and server makers as it muddles through the demand apocalypse that has caused that industry to all but seize up. Meanwhile there’s practically zero chance that a white knight would step in and buy it.

“AMD is in a real tough spot,” says Patrick Moorhead, head of research firm Moor Insights and Strategy and a former AMD executive. “It needs to hang on until the macro-economic situation improves while simultaneously attacking the growth areas of the marketplace where it can show off its differentiators. Cloud exascale servers and Windows tablets are growth areas that AMD must capitalize upon in short order.” Neither is assured.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik