AMD Cuts CPU Production To Avoid Excess Inventory

Semiconductor firm AMD has announced that it will be cutting back on processor production in order to avoid a production glut which could affect both its bottom line and revenue prospects for its own customers.

In a conference call to investors, Rob Rivet, AMD's chief financial officer said that it will allow processor inventories to fall down to near zero before resuming processor production at a lower production rate in order to maintain a high Average Selling Price (ASP).

AMD failed to mention whether the CPU cuts will come across the board or whether they will be limited to specific segments like laptop or server processors.

However, Dirk Meyer, AMD's President and current CEO, said that AMD would not meet demand, adding that "I was just going to put a point on that by saying you know, we think our CPU sales out of AMD will be less than consumption… our inventories will drain in Q1 – we'll clearly be manufacturing below our shipment level"

This could allow AMD to shut down, at least temporarily, a fraction of its plants and save some money.

During the same conference call, AMD's CEO also said that he feels that Netbooks as a separate PC category will eventually be absorbed by the laptop segment; something that could eventually come true as Netbooks are becoming more powerful and bigger as well.

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Our Comments

There are hints that AMD's Notebook CPU production could be most affected, which if true, would be a bad sign for the semiconductor company. Laptops, most particularly the Netbooks segment has been the most resilient in the past few quarters. Furthermore, laptop CPUs normally carry a much higher Average Selling Price compared to the desktop versions.

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