AMD estimates weak sales, to cut 10 percent of jobs

SAN FRANCISCO Mon Apr 7, 2008 7:13pm EDT

An AMD technician displays a wafer for the media in Dresden, Germany, May 17, 2004. REUTERS/Arnd Wiegmann

An AMD technician displays a wafer for the media in Dresden, Germany, May 17, 2004.

Credit: Reuters/Arnd Wiegmann

Related Topics

SAN FRANCISCO (Reuters) - Advanced Micro Devices Inc (AMD.N) said on Monday it would cut 10 percent of its work force, or about 1,680 jobs, and gave a first-quarter revenue estimate below expectations, sending its shares down as much as 5 percent.

Citing lower-than-expected sales across its business, AMD estimated revenue for the quarter ended March 29 at about $1.5 billion, well below the average analyst forecast of $1.62 billion, according to Reuters Estimates.

Analyst Ashok Kumar of CRT Capital Group said a weakening economy and tough competition from larger rival Intel Corp (INTC.O) were causing AMD's revenue shortfall. AMD's estimate would be a 22 percent rise in revenue from the year-ago period, but a 15 percent drop from the fourth quarter.

"Demand is weak because of the economy. And then there's some (market) share loss that has contributed to the greater-than-expected shortfall," said Kumar, adding that analysts had expected a 7 percent sequential drop in revenue.

AMD, the second-largest maker of computer processors, lost market share last year as its chip-making technology lagged Intel's. Intel ended 2007 with a 79 percent revenue share of the microprocessor market and AMD with 13 percent, according to market researcher iSuppli.

But Intel has also issued its own warning about the first quarter. In early March, Intel cut its gross margin forecast, citing weaker pricing for NAND memory chips used in consumer electronics, such as digital music players and cell phones.

Intel is scheduled to report results on April 15 and AMD on April 17.

AMD lags currently lags Intel in chipmaking technology and could be about nine months behind Intel when it introduces chips with elements as small as 45 nanometers in the second half of 2008. A nanometer is a billionth of a meter.

Those smaller features allow Intel, AMD and other chipmakers to get more computing performance out of a single chip at the same or lower power consumption levels.

AMD's revenue shares of the microprocessor market fell 17 percent to $4.3 billion last year while Intel gained 8 percent to $25.9 billion, according to market research firm iSuppli.

As a result of the job cuts, planned by the end of the third quarter, Sunnyvale, California-based AMD expects to record a restructuring charge in the second quarter, the size of which is being finalized.

Intel is based in nearby Santa Clara, California.

"We have a cost structure that we need to reduce due to lower revenue expectations, which are occurring in uncertain market conditions," said AMD spokesman Drew Prairie, adding that the cuts amount to about 1,680 of AMD's 16,800 jobs.

Shares of AMD were at $6.15 in extended trading after falling as low as $6.00 from their New York Stock Exchange close of $6.34. Shares of Intel edged lower to $21.55 from their Nasdaq close of $21.75.

Stifel Nicolaus & Co analyst Cody Acree said AMD's products are "sub-par" but notes that the company has come out with new products, such as its Barcelona family of microprocessors aimed at the market for computer servers, which form the backbone of corporate data centers.

AMD had a hiccup with the Barcelona chip due to a flaw that caused errors in some computer applications, but it is now shipping greater quantities of the much-anticipated chip.

"This is a miss, but it's also a miss that's being corrected with products that are already out the door and not just being talked about," Acree said.

(Additional reporting by Tiffany Wu in New York and Duncan Martell in San Francisco; Editing by Braden Reddall, Phil Berlowitz)

FILED UNDER: