Significant Layoffs Expected at AMD Amid Market Weakness

Rumors are circulating that chip maker AMD will significantly slash its work force after warning that quarterly revenue would fall due to a weak global economy. It reports quarterly earnings Thursday and the layoffs could be announced this week, too.

AllThingsDigital and CNET say 20 to 30 percent of AMD’s employees could get pink slips and it could be forced to scale back some of its product offerings. The company had 11,737 employees as of the end of the second quarter. An unidentified source told Reuters that 10 to 20 percent of staff would be cut.

The company said Thursday that revenue would be down 10 percent instead of its previous estimate range of down 4 percent to up 2 percent.

With PC sales down — third-quarter shipments declined more than 8 percent year over year, according to Gartner and IDC — AMD and dominant rival Intel as well struggle to compete with new rivals such as Qualcomm in low-power chips for phones. A second Reuters story notes that though Intel holds 80 percent market share for PC chips, its share is less than 1 percent for smartphones, behind Qualcomm, Samsung, ARM and others.

CEO Rory Read, appointed last year, cut 10 percent of the work force to save in operating costs. This round of cuts reportedly is to be focused on engineering and sales, which Ashraf Eassa at Seeking Alpha considers a sure way to further hurt AMD’s competitiveness. He writes:

I think the problem is that AMD’s CEO is attempting to leverage his experience at Lenovo by applying the same cost-cutting tactics to what is fundamentally an R&D-driven business. …

If the company is able to cut “dead weight” and become a leaner, meaner execution machine, then it will thrive going forward. If the company is cutting key engineering talent, then it is in effect undergoing a lobotomy and putting itself out of the running for anything but Nvidia’s and Intel’s low-margin scraps.