AMD Cuts Headcount After Earnings Show Weak Sauce
Playing second fiddle to Intel (NASDAQ:INTC) is nothing new for Advanced Micro Devices, Inc. (NYSE:AMD). With its recent slide in sales, AMD’s share of the chip market that serves personal computers, servers and mobile units now stands below 20%, down from 20.6% the prior quarter. Intel’s share of this key market jumped to just over 80%.
The company’s disappointing sales in Q3 center around the oft-delayed central processing unit (CPU) “Bulldozer” product and the refresh scheduled for release this past quarter. The bad news was the weak sales figures that came as a result of the delays, something AMD insiders and investors are all too familiar with. The silver lining is that sales weren’t lagging because of demand, which would have been much more disturbing.
See Full Analysis of AMD’s Stock Here
Cost Cutting Measures On Track
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While cost-cutting on the heels of losing market share may strike some investors as reactionary, AMD’s plans seem to be on target. The savings will be dramatic, and the renewed emphasis on power savings and emerging markets bode well for the short to medium term. The announced cuts amount to 10% of the company’s workforce and will come across company lines. According to the company, approximately $128 million in overhead will be cut by year-end 2012. An additional $90 million in savings will come from what AMD management refers to as “operational efficiencies.” As more details of these measures become available we will revisit our direct expense forecasts for the company.
Why The AMD Plan Going Forward Justifies Trefis Price Estimate
In addition to the cost-cutting, AMD management is focused on a few core objectives. One is to address incessant delays in product roll-outs. Bulldozer, and other products like it, position AMD well in the power consumption market, an area seen as high growth with the explosion in mobile devices. And with 32% of AMD’s stock price derived from notebook processors according to Trefis estimates, this is a key division for the company so delays need to be avoided at all costs.
Trefis has a $9.90 price estimate, which is well ahead of the current market price.
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