One of the main challenges faced by technology companies in this day and age is staying profitable, regardless of the market’s troubling waters. While many (including Intel and NVIDIA) have faced declines in their revenue streams, they have come through 2012 largely unscathed due to their relatively large amounts of on-hand cash and their continued strength with OEMs. Unfortunately, the same can’t be said for AMD, which, after several restructuring efforts has gone from minor profits to operating losses.
According to AMD’s Q3 financial results their revenue of $1.27 billion represents a reduction of 10 percent over the previous quarter and a steep year over year decline of 25 percent. There is also an operating loss of some $130 million. AMD’s CEO Rory Read admits that AMD was caught somewhat flat footed by the rapidly changing conditions:
”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. ”It is clear that the trends we knew would re-shape 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 breakeven point and enable us to fund differentiated product roadmaps and strategic breakaway opportunities.”
Buried within the financials are other troubling items as well. Due to “weaker than expected demand” AMD was forced to take a $100 million inventory write down on Llano APU parts. In plain English this means large numbers of Llano APUs remained unsold or had their prices prematurely reduced in an effort to increase sales. This doesn’t bode particularly well for their new Trinity processors as it seems AMD’s “Fusion” initiative is not resonating with end users or OEMs.
The generally weak buying market didn’t help things either as AMD reported that sales to OEMs and across-the-board pricing for their products decreased by significant amounts as well.
Unlike within previous quarters, the graphics division wasn’t spared from the bloodletting either. Their sales were down 7 percent from the previous quarter and 14 percent year over year. However, this division did provide some of AMD’s financial high points since lower shipments to OEMs were offset by end-user higher channel sales and the average selling price for their GPUs has seen an average increase. So even though OEMs don’t seem to be high on AMD’s graphics cards, direct sales to end users through standard retail channels are doing better than expected.
So what does this mean for AMD and their employees? Unfortunately, the dreaded “restructuring” word was an integral part of today’s financial statement and that means layoffs. Previous rumors had workforce reductions pegged at nearly 30% but it seems like that number was overly high. As it stands, AMD is looking to reduce up to 15% of their workforce before the end of this quarter. That is still a significant reduction and we have to wonder how day to day operations, marketing and engineering are expected to continue apace after the cuts from the last 18 months.
There was also a mention of site consolidations but details about this effort were largely missing from the initial press release. It could very well represent further moves away from ATI’s formerMarkhamheadquarters to AMD’s mainAustinfacility.