By DON CLARK
April 8, 2008; Page B3
Advanced Micro Devices Inc. projected a sharp drop in first-quarter revenue and announced a 10% reduction in its work force, as technical gaffes and softening computer demand afflicted the chip maker.
The job cuts will affect about 1,680 workers at the Sunnyvale, Calif., company, which previously employed 16,800, an AMD spokesman said.
AMD, locked in a battle with Intel Corp. over chips known as microprocessors, said it expects first-quarter revenue of $1.5 billion, about 15% lower than the company reported in the fourth period. The company previously had predicted a decline in line with normal seasonal patterns. The AMD spokesman said a decline of about 7% is typical for the period.
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The company has been coping with a series of problems, including a heavy debt load from its 2006 acquisition of ATI Technologies Inc. and a stronger line of competing products from Intel. AMD counterattacked in September by announcing a new line of chips that pack the equivalent of four electronic brains on a single piece of silicon.
In December, AMD disclosed technical defects that affect models of the chip for server systems and desktop PCs. It has now introduced versions without those bugs, but computer makers held up purchases in the meantime, said JoAnne Feeney, an analyst at FTN Midwest Securities Corp.
She added that demand has been softening for desktop PCs, a field where AMD has been the strongest lately. "They were gaining share in desktops, which paradoxically exposed them more" to the demand problem, Ms. Feeney said.
John Lau, an analyst at Jefferies & Co., estimated that the total PC market declined about 10% from the fourth period, with AMD's 15% drop also reflecting losses in market share.
AMD reported a $1.77 billion loss for the fourth quarter, reflecting write-offs associated with the ATI deal. The company has vowed to return to profitability this year, but Mr. Lau said the announced job cuts may not be sufficient to allow AMD to achieve that goal.
Analysts have been waiting for AMD to disclose plans to reduce manufacturing costs, possibly through arrangements to share production with partners. "We believe part of their solution will be to outsource," Mr. Lau said.
AMD's stock traded at $6.34, up 11 cents, at 4 p.m. on the New York Stock Exchange. Following the news, its shares were down to $6.22 in after-hours trading.
Write to Don Clark at don.clark@wsj.com
