AMD to cut expenses by $US350m

AMD to cut expenses by $US350m

Advanced Micro Devices will experience growth in all of its businesses amid a tentative semiconductor recovery in 2003, but it will have to endure a large restructuring charge and cut staff to get to that point, according to company executives.

The company announced it is developing a plan to reduce expenses by $US350 million 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 $US100 million a quarter, starting with a plan to reach break-even EBITDA (earnings before interest, tax, depreciation and amortisation) in the current quarter, Bob said.

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

The $350 million 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, he said.

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

"For us to meet our projections of break-even 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.

The company expects fourth-quarter revenue to grow 20 per cent 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, several executives said. AMD becomes 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 the 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. The server version of the Hammer chip, the Opteron, will outperform Intel's Xeon processor for smaller servers, he said.

And once those companies are ready for 64-bit computing, recompiling their applications for Opteron will be much easier than for other competing 64-bit solutions, such as RISC (reduced instruction set computing) chips or Intel's Itanium processor, Meyer said.

Several executives from AMD's business lines stressed the importance of Asia to the company's future. Much of the growth in the IT industry is predicted to come from Asia, and specifically China, over the next few years, and AMD is keen on capitalising on that market, they said.

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