AMD reports weak third-quarter earnings, announces 15 percent layoffs

Advanced Micro Devices, the second-largest maker of PC microprocessors behind Intel, reported weak earnings for the third quarter that ended Sept. 29. AMD also announced that it would lay off 15 percent of its employees, or 1,700 jobs.

Revenues for the quarter were $1.27 billion, down slightly from the analyst consensus estimate of $1.28 billion. The  non-GAAP loss for the quarter was 20 cents a share, compared to the analyst estimate of a loss of 15 cents a share.

“The PC industry is going through a period of very significant change that is impacting both the ecosystem and AMD,” said Rory Read, AMD president and CEO, in a statement. “It is clear that the trends we knew would reshape the industry are happening at a much faster pace than we anticipated. As a result, we must accelerate our strategic initiatives to position AMD to take advantage of these shifts and put in place a lower cost business model. Our restructuring efforts are designed to simplify our product development cycles, reduce our break-even point, and enable us to fund differentiated product road maps and strategic breakaway opportunities.”

AMD warned Oct. 11 that its revenues would be worse than expected, down about 10 percent from the previous quarter. Previously, AMD had expected third-quarter  revenue to be down only 1 percent. It blamed the slowdown on weaker-than-expected demand across all product lines caused by a challenging macroeconomic environment.

AMD had expected third quarter gross profit margin of 31 percent, down from its previous expectation of 44 percent, due to a write-down of $100 million in inventory. The profits were also hit by soft demand that brought down average selling prices for microprocessors. (Intel’s quarterly revenues were $13.5 billion).

AMD’s actual earnings were weak like Intel’s. AMD reported a GAAP loss of $157 million, or 21 cents a share, on revenue of $1.27 billion. That compared to a profit of $97 million, or 13 cents a share, on revenue of $1.69 billion a year ago.

But Sunnyvale, Calif.-based AMD has the added problem of being behind Intel on a number of fronts. The warning prompted rumors of layoffs at AMD. The PC market has been losing sales to tablets and smartphones, and consumers are seemingly waiting for the Oct. 26 launch of Windows 8 before buying new computers. AMD had 11,813 employees at the end of the third quarter.

Gartner is also saying that third quarter PC shipments will turn out to be flat compared to the second quarter. Analyst Vijay Rakesh at Sterne Agee expected revenues of $1.27 billion and a loss of 17 cents a share. AMD’s stock market value is down to $1.85 billion at today’s closing price at $2.61 a share. AMD’s stock is up slightly in after-hours trading.

For the fourth quarter, AMD expected revenues to fall 9 percent from the third-quarter level. As for the layoffs, Read said,

“Our restructuring efforts are decisive actions that position AMD to compete more effectively and improve our financial results. Reducing our workforce is a difficult, but necessary, step to take advantage of the eventual market recovery and capitalize on growth opportunities for our products outside of the traditional PC market.”

[Photo credit: Dean Takahashi]