Dan3 Dump enough of your workforce and it can do wonders for margins.
I guess Intel learned this from AMD:
AMD cutting 2,300 jobs, losing Gateway
Shareholders and employees of Advanced Micro Devices received a double dose of bad news Tuesday as the Sunnyvale-based chip maker announced that it is cutting 2,300 jobs and Gateway said it will no longer use AMD processors in its personal computers.
AMD said that it is closing two plants in Austin as a move to cut costs and focus on its two core businesses, microprocessors and flash memory, amid a major downturn in both the PC and semiconductor industries and a fierce price war with rival Intel.
About 1,000 of the job cuts will come from closing the Austin plants, and the balance will come from restructuring AMD facilities in Penang, Malaysia. The two fabrication plants in Austin, called Fab 14 and Fab 15, primarily make networking and older embedded chips on a contract basis for businesses that AMD has already sold off, such as Legerity, its communications chip business.
``Even without the downturn, they didn't fit with our long-term strategy,'' said John Greenagel, an AMD spokesman.
Greenagel noted that the two plants were both almost 17 years old. ``They were destined to be closed eventually,'' he said. ``Clearly, the pressure is on us to lower our expenses, and Intel is aggressively cutting prices.''
For AMD, the scrappy upstart rival to the behemoth Intel, it has been a long battle to get its processors inside the systems of the top-tier PC makers.
But with the current industry downturn -- PC sales are declining for the first time in many years -- PC makers are struggling to be profitable. And some PC makers are realizing it is too costly to support two different system architectures.
``They need a separate motherboard, separate chipset, separate testing and qualification,'' said Mark Edelstone, a Morgan Stanley Dean Witter analyst. ``There is an expense associated with that.''
Phasing out AMD
Gateway, a leading direct seller of PCs based in San Diego, said it decided to drop AMD's chips in favor of Intel's as it tries to simplify its product lines to save engineering and manufacturing costs. Lisa Emard, a spokeswoman for the struggling PC maker, said the company will phase out the Gateway Select line, which used AMD's Athlon and Duron processors, over the next few months.
Gateway's decision is another blow to AMD, which also recently lost MicronPC as a customer. IBM has been phasing out the use of AMD chips in its PCs sold in North America and Europe. And analysts said Hewlett-Packard's proposed acquisition of Compaq could potentially be bad news for AMD as the combined company streamlines suppliers.
Intel declined to directly comment on its relationship with Gateway, but Intel spokesman Robert Manetta said, ``We see the recent decisions by Gateway and other major PC makers as a further sign of momentum for Intel technology from top to bottom.''
Drew Peck, an SG Cowen & Co analyst, said Intel is aggressively courting AMD customers in the marketplace. ``Intel must be cutting extraordinary deals in order to gain this exclusivity,'' he said. ``If anything, it's evidence that the price war is intensifying even more.''
AMD said it expects the job cuts and plant closures will result in an annual cost savings of about $125 million. AMD will take a one-time restructuring charge estimated at between $80 million and $110 million in the third quarter. Last month, AMD said it expects sales to fall between 10 percent and 15 percent from the previous quarter amid sluggish demand, and at the time it also reiterated that it expects an operating loss.
Price war rages
The layoffs, which are 15 percent of the company's total workforce of about 15,000 employees, were not unexpected by many Wall Street analysts, who have seen most companies in Silicon Valley cut their workforces during the current economic downturn.
But the job cuts are the first big layoffs at AMD in many years. AMD's last layoffs occurred in December 1996, when it cut 250 jobs, Greenagel said.
The financial performance of both AMD and Intel could continue to decline as the companies slash prices to win fewer sales.
``The market at this point is so moribund that the only thing they can do to spur sales is to cut prices,'' said Peck.
AMD's Greenagel wouldn't concede any ground in AMD's battle against Intel.
``Intel has been making a full-court press to get everybody to go to Intel exclusively,'' he said. ``They would like to eliminate the competition. We don't think they can, and we are going to be a more aggressive competitor going forward. The actions that we are taking today will help us do that.'' |
