Replies to post #2278 on Intel Corp (INTC)

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Posted by Maui_Dude to the SI AMD thread:

Posted on Wed, Nov. 06, 2002

With revenue falling and Intel stealing market share, AMD is planning a major restructuring that is likely to include large-scale layoffs
DOWNTURN HAS HIT ENTIRE INDUSTRY BUT 2002 HAS BEEN ESPECIALLY BAD FOR AMD
By Therese Poletti
Mercury News

Hector Ruiz, chief executive of the struggling Advanced Micro Devices, is under Wall Street's glare, and he knows it.

With revenue falling and Intel stealing market share, investors are leaning on the Sunnyvale chip maker to find ways to cut costs and boost sales of its microprocessors.

Ruiz, who was promoted to CEO in April, says AMD is about to embark on a major restructuring -- an overhaul that will probably include large-scale layoffs. After five consecutive quarters of losses, AMD is looking for ways to cut $350 million out of its operating costs in 2003 so it can return to profitability, even if chip sales don't rebound.

On Thursday, investors are hoping to hear more details of those restructuring plans when Ruiz and other top AMD executives address analysts at the company's headquarters. AMD's battered shares have doubled from a 52-week low of $3.10 in early October, to close at $6.80 Tuesday, in part because of investor anticipation of cost cuts.

``We will share as much as we will be able to,'' Ruiz said in a phone interview Tuesday. ``We are trying to put something in place that is not one-event driven. We are trying to make this part of a strategic transformation for the company.''

Even with the entire chip industry hurting from the downturn, this year has been an especially difficult one for the scrappy company co-founded in 1969 by Jerry Sanders. Sanders, who remains chairman, was cheered by some in Silicon Valley as he made AMD into a real competitor to Intel, though others criticized his high salary and extravagant Beverly Hills lifestyle.

So far, the company has announced two delays of its next-generation chip family, code-named Hammer, a 64-bit chip that will be the core of its future product line. Ruiz now expects the desktop version of Hammer to be ready late in the first quarter or early in the second quarter. The server version of that chip, called Opteron, will probably ship sometime in early April 2003.

AMD has also had a few financial misses, warning Wall Street of lower-than-expected revenue three times and recently making an inventory adjustment as it had to take back chips from customers who wanted different products. As it held off shipping more new products into the market during the third quarter, it lost almost half of its market share to Intel, according to Mercury Research, slipping to 11.6 percent, down from 20 percent a year ago.

With sales in the third quarter coming in at $508 million and revenue for the fourth quarter expected in the $600 million range, the company is under severe pressure to cut costs to reduce its break-even point. Previously, the company was able to make money if its quarterly revenue hit a range of $750 million to $800 million.

More job cuts expected

Last year, AMD closed two older plants in Austin and restructured another plant in Penang, Malaysia, shedding 2,300 jobs, or about 15 percent of its total workforce at the time.

Analysts are now expecting the company to lay off an additional 10 percent to 20 percent of its workforce of 13,000.

It is not clear yet whether AMD will announce job cuts Thursday. ``We are in the middle of trying to figure out what we will do,'' said Ruiz.

Indeed, some analysts said the company is combing through every part of the business, trying to find ways it can consolidate offices and real estate and farm out different functions, such as payroll and warehousing for its products.

HQ move rumored

Kevin Krewell, an analyst with InStat/MDR in San Jose, said AMD has hired consulting firm McKinsey to help it sort through the options.

``The engineering side of the house is fairly intact,'' Krewell said. ``Most of the cost-cutting is taking place in administration and overhead. Anything they can outsource, they will.''

There have even been rumors that the company would move headquarters to Austin, where it has a large presence with a big chip plant and a growing concentration of executives. Ruiz, for example, was based there as president and chief operating officer, although he recently bought a house in Palo Alto.

``I spend half my time in California and half my time in Austin when I am in the U.S.,'' Ruiz said. ``We have more people in Austin, but California is the corporate headquarters and intends to be that for the foreseeable future.''

Ruiz said that he also plans to spend a lot of the analyst meeting talking about the future, AMD's Hammer technology, its memory business and its recent entry into the wireless space with its Alchemy chip set for Wi-Fi standards. He said AMD has not yet finalized its expanded relationship with Fujitsu for memory chips, so details on that won't be available this year.

``If we can extend their attention span beyond a couple of quarters, we have some exciting things in terms of products,'' he said. ``I'd be absolutely stunned if people don't walk out of there saying we have a machine going here.''


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Contact Therese Poletti at [e-mail] or at [phone].