Would AMD Cuts Be Surgery, or Suicide?

Clouds of doom appear to be hanging over enterprise chip maker AMD, with two separate reports predicting that the chip maker will make drastic cuts as early as this week.

Over the weekend, Bloomberg predicted that as much as 20 percent of AMD’s workforce could be let go, or 2,340 members of its workforce. CNET also chimed in with a report that put the figure as high as 30 percent.  AMD reports its quarterly results Oct. 18, a typical time to announce layoffs and their corresponding effects on the company’s finances.

Layoffs are widely expected, with Bloomberg citing Wedbush analyst Betsy van Hees as predicting AMD will hand out pink slips as early as this week. “With PC demand being so weak, we don’t think the company has any choice but to do some considerable cost-cutting measures,” she said.

The reason? A general decline in the PC market due to overall lower demand, as well as companies and consumers holding off for Windows 8: both Gartner and IDC reported that, in the third quarter, hardware sales slipped between 8.3 percent and 8.6 percent.

If AMD does make cuts, it’s hard to believe that it would shy away from its enterprise operations. For one thing, companies usually prioritize their highest-margin businesses; at the bottom of the ladder stands the generic PC desktop market, where the $2,000 or so a PC used to command in price is ancient history. “A weak global economy as well as questions about PC market saturation and delayed replacement cycles are certainly a factor, but the hard question of what is the ‘it’ product for PCs remain unanswered,” Jay Chou, an analyst for IDC, wrote in a recent report.

Unfortunately for AMD, the notebook market hasn’t fared much better, with tablets (mostly powered by ARM, although a handful of Intel Atom “Clover Trail convertibles are expected) cutting into the market as well. Both IDC and Gartner expect the consumer market to pick up in the fourth quarter, but that might be apparently too late for AMD.

One source close to AMD expects the company to trim sales and platform engineering, following the cuts that struck AMD’s marketing and PR departments earlier this year.

The other question is how patient AMD is willing to be in the data center. In August, AMD circulated its server chief, who demonstrated how the company planned to revitalize itself in the server market. And it has committed to its SeaMicro acquisition, even as it has committed to supporting rival Intel and its Xeon chips. The problem, right now, seems to be in selling those solutions—which, if AMD does cut it sales staff, will become even harder.

“We like the mega data center market,” Lisa Su, AMD’s senior vice president and general manager of its global business unit, said on a July earnings call. “It is the fastest-growing market in the server business. As we’ve discussed before, the server business is the one that takes a little bit longer to actually see product adoption. But we’re very focused with both our Opteron product line as well as our SeaMicro products with the fiber-based technology in attacking those mega data centers. And lots of customer conversations in those areas.”

AMD chief executive Rory Read, however, may have given the clearest signal. “Our focus has to be around profitability and profitable growth,” he said on that same call. “Profitability allows us to continue to invest in the company and the areas that help us grow and build the company over time. We’re going to focus on profitability. Of course, we need top line and a combination of that. But again, we made the conscious decision to manage the expense, run a tight ship, make the decisions around those activities.”

Can AMD cut its way to profitability? Sure. But will it hamstring itself on the way to future growth? That’s less certain.


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