AMD to take further action to cut costs

The cost cutting involves facility closures, but the company didn't comment on whether it would lay off staff

Advanced Micro Devices on Friday said it would take further actions, which could include facility closures, to cut costs as it restructures in an effort to return to profitability.

The further cost reduction efforts are expected to result mainly from consolidations of facilities as the company tries to merge operations, said Drew Prairie, an AMD spokesman.

AMD originally reported the additional cost-cutting measures in a filing on Thursday with the U.S. Securities and Exchange Commission.

The cost reduction efforts will result in additional charges during the remainder of fiscal 2009 and beyond, though AMD couldn't estimate the exact amount. The efforts will not have a significant material impact on AMD's operations, the company said in the filing.

Prairie declined to comment on whether the cost cutting would include further headcount reduction, which have been a part of AMD's past restructuring efforts. In January, the company said it would shed 1,100 jobs and cut salaries.

The actions are part of AMD's effort to reduce costs to reach break even by the end of the year. Battered by consecutive quarterly losses, AMD has seen demand for chips fall during the recession.

It has joined other chip companies, including Intel and Texas Instruments, that are struggling due to constrained budgets and a slowdown in PC demand.

In its filing with the SEC, AMD said it is taking US$50 million in charges related to cost-cutting efforts during the fiscal first quarter of 2009. It includes $23 million in charges related to layoffs during the first fiscal quarter of 2009.

The remaining $27 million in charges relate to contract and program termination, and exit costs for facility site consolidations and closures.

In an earlier filing on Dec. 28 with the SEC, AMD said it would take charges in the first half of fiscal 2009 resulting from cost-cutting actions, though it could not estimate the amount at the time.

AMD is set to announce its first quarter results for fiscal 2009 on April 21. The company is trying its best to bring operating expenses in line with the revenue, but it could have a tough time, said Dunham Winoto, senior analyst for semiconductors at financial analyst firm Avian Securities.

The spin-off of manufacturing assets and debt of about $1.1 billion to GlobalFoundries will help reduce costs, but the ATI acquisition will continue to be a burden as competition in the graphics market with Nvidia and Intel heats up, he said.

AMD last month spun off its manufacturing operations into GlobalFoundries, a separate company, formed as a joint venture with Abu Dhabi investment firm Advanced Technology Investment Company. AMD holds a 34.2 percent stake in the new company.

AMD had a limited vision of how the recession would affect them, so cost-structure adjustments are coming on the fly, Winoto said. Intel made staff cuts and other adjustments years ago to align its cost structure so it is in better shape, he said. That has helped Intel be in a better position to deal with the recession compared to AMD.

But AMD hopes to balance its operating expenses with revenue soon, as early as the third quarter of 2009, Winoto said. Spinning off the chip manufacturing efforts and the debt from is a positive step, and other adjustments including staff cuts should help bring the company closer to breaking even.

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Agam Shah

IDG News Service
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