UPDATE 4-Chipmaker AMD announces layoffs as PC sales stumble

Thu Oct 18, 2012 6:21pm EDT

* Revenue forecast falls short of expectations

* AMD struggles with slow PC industry, lack of mobile

* Targets $1.3 billion quarterly break-even point

By Noel Randewich

SAN FRANCISCO, Oct 18 (Reuters) - PC chipmaker Advanced Micro Devices said on Thursday it will cut its work force of nearly 12,000 by 15 percent, its second round of layoffs in less than a year as it struggles with a weak global economy and a consumer shift toward tablets.

The chipmaker forecast a drop in fourth-quarter revenue that is worse than Wall Street expected, and Chief Executive Rory Read said he does not expect the PC industry to improve for "several" quarters.

AMD, which is a distant No. 2 to top chipmaker Intel Corp, said in a statement it expects its restructuring actions, which will also include site consolidations, to result in operational savings of $190 million next year. It expects to record a restructuring expense in the fourth quarter of about $80 million.

"It'll bring earnings up, I guess, but you still have to ask how disruptive this will be and what roles are they cutting," said Stacy Rasgon, an analyst at Bernstein Research. "The market is not going their way, and they're not in a strong position."

Last week, AMD warned that its third-quarter revenue fell more than it had previously expected and that gross margins suffered from a $100 million writedown due to lower future growth of some products.

AMD said it has set a target for a quarterly $1.3 billion revenue break-even point.

Read took over at AMD last year promising to fix long-standing execution problems that have plagued the chipmaker. But AMD has continued to lose money as well as market share to Intel and graphic chip rival Nvidia.

"The trends we knew would re-shape the industry are happening at a much faster pace than we anticipated," Read told analysts on a conference call.

Looking for markets with faster growth than PCs, AMD said it plans to increase its focus on selling chips for communications, industrial and gaming applications. Read said those areas will grow to account for 20 percent of quarterly revenue by the fourth quarter of next year compared with 5 percent now.

FLAT-FOOTED

Like Intel, Sunnyvale, California-based AMD was caught flat-footed in recent years with the emergence and fast growth of mobile devices like Apple's iPad.

Tablets and smartphones, once considered a niche market by Intel and others, are quickly gaining favor with consumers and eating into sales of laptops and desktop computers, while a slowing global economy is dampening spending in general.

One of Read's first major moves was to announce a plan last November to slash 10 percent of AMD's workforce to save about $200 million in operating costs.

AMD and Intel have been slow to adapt their PC chip designs to mobile. But while Intel has poured its massive resources into efforts to catch up to smartphone chipmakers like Qualcomm, AMD has yet to define a clear mobile strategy.

Shares of AMD have fallen 43 percent over the past year to levels last seen in 2009.

AMD posted third-quarter revenue of $1.27 billion, down from $1.69 billion a year ago, and a net loss of $157 million, or 21 cents a share, compared with a year ago profit of $97 million, or 13 cents a share.

Analysts had expected AMD to post $1.28 billion in revenue for the third quarter, according to Thomson Reuters I/B/E/S.

AMD estimated fourth-quarter revenue would fall 9 percent from the third quarter, plus or minus 4 percent.

AMD's fourth-quarter revenue forecast translates into a range of $1.116 billion to $1.196 billion. Analysts on average expected $1.33 billion.

"The guide is actually surprisingly weak, it shows that AMD still has issues to deal with in the near term," said Patrick Wang, an analyst at Evercore Partners.

AMD's stock was unchanged in extended trade after closing down 5.41 percent at $2.62.

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