AMD to cut expenses by $350m

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AMD to cut expenses by $350m

Advanced Micro Devices (AMD) is anticipating growth in all of its businesses amid a tentative semiconductor recovery in 2003, but said it would have to endure a large restructuring charge and cut staff to get to that point.

AMD announced a plan to reduce its expenses by $350m (£220.2m) over the next year, giving the company a better chance of achieving its goal of profitability by the end of 2003, said Robert Rivet, senior vice-president and chief financial officer.

The company will look to cut around $100m per quarter, starting with a plan to reach breakeven earnings before interest, taxes, depreciation and amortisation (EBITDA) in the current quarter.

AMD will need to take a restructuring charge of "several hundred million dollars" in the fourth quarter of this year, because of outsourcing of certain activities and employee cuts, Rivet said.

The $350m in reductions will come from cuts in operating expenses, research and development, sales and marketing and other support functions such as human resources and finance.

Reports circulated this week of 10% to 20% cuts in AMD's workforce of 13,000 employees, but president and chief executive officer Hector Ruiz refused to confirm those numbers.

"For us to meet our projections of breakeven EBITDA in the fourth quarter, it's inevitable that people will have to go. We intend to communicate that to our people first," before releasing specific layoff numbers, he said.

AMD's capital expenditures will be $750m for 2002 and that number will drop further to $600m in 2003 as part of AMD's restructuring efforts. By comparison, rival chipmaker Intel said that its capital expenditures for the year will be about $4.8bn.

AMD expects fourth-quarter revenue to grow by 20% over the third quarter, but the fourth quarter is a seasonally strong period for PC and processor manufacturers thanks to holiday sales.

The past year has not been kind to AMD and it was clear to many industry analysts that a change was needed. As Rivet admitted, "without any corrective actions, we are not going to be financially healthy".

The company also needs to continue winning business from OEMs to achieve profitability. AMD will be more attractive to its customers if it can offer products for the commercial market in desktop, mobile, and server machines, said Dirk Meyer, group vice-president of the computational products group, which develops and manufactures its PC processors.

The best way to accomplish that enterprise growth will come from the introduction of its 64-bit Hammer processors for both desktops and servers in the first half of 2003, said Meyer.

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