Advanced Micro Devices Inc. (AMD) has eliminated approximately 400 jobs from its Austin workforce in order to reduce operational costs. This layoff is an attempt by AMD to optimize its cost structure and thereby improve its competitiveness.
The restructuring announcement came as part of AMD's third-quarter 2012 earnings release. The company had planned to eliminate 15% of its workforce, or about 1,800 jobs but did not mention local layoffs. The company had nearly 2,500 workers in Austin at the time.
These layoffs are expected to reduce the cost base by 25% and generate total annualized cost savings of around $190 million in 2013. The new structure will enable the company to break even in the third quarter of 2013 at a quarterly revenue level of $1.3 billion.
Management is looking to reinvest some of the savings into newer business areas, such as tablet-style computers in emerging markets, site consolidations and Internet-related opportunities (mainly cloud computing).
Advanced Micro has been suffering from the slowdown in the global PC market. We believe that the weak computer market, strong competition from Intel Corp. (INTC) and the company’s failure to penetrate the emerging mobile device market have forced it to refine its cost structure.
The company reported a very poor third quarter, with a significant net loss that was the combined effect of weak demand, an inventory write-down and productivity issues. The company’s third-quarter sales of $1.27 billion was down 10.2% sequentially and also below the consensus estimate of $1.28 billion.
Worldwide PC sales have been stagnant, while smartphones, tablets and other mobile devices experienced strong growth. In order to stay ahead of its rivals like Intel and NVIDIA Corp. (NVDA), we believe Advanced Micro needs to enter these emerging markets.
Advanced Micro shares currently carry a Zacks #5 Rank, implying a Strong Sell rating in the short term (1–3 months).
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