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AMD: 15 per cent of staff overboard, as the ship sinks?

Bob Dylan once warned that the times are changing, but his lyrics couldn’t have prepared us for a world without AMD, the intrepid chip designer that’s kept Intel honest (mostly) and ensured, by way of competition, that processor prices wouldn’t fly through the roof. Now it appears the floor is falling out from underneath AMD, and all we can do is watch it sink.

It stinks being on the outside looking in, but it’s even worse for those on the inside looking out. Around 1,800 AMD employees will soon be out of work as the chip designer prepares to reduce its global workforce by about 15 per cent, mostly in the next three months. Happy Christmas, right?

The massive layoffs are part of a restructuring effort as AMD tries to reinvent itself in a changing landscape and resuscitate flat lining sales figures. To wit, AMD reported (opens in new tab) a third quarter net loss of $157 million (£98 million) on revenue of $1.27 billion (£790 million), representing a 10 per cent sequential decrease and a 25 per cent year-over-year decline.

(opens in new tab)PC sales are in a slump as consumers gravitate towards mobile devices like tablets and smartphones, both of which are capable of surfing the web on a whim and firing off emails. That’s not to say either type of device is a replacement for the desktop, but clearly we’ve been witnessing a tectonic shift in home computing. AMD now recognises this, even if it was slow to receive the memo.

“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 reshape the industry are happening at a much faster pace than we anticipated.”

Amid a tough economic environment, there’s only so much disposable income to go around, and consumers seem less interested than ever in purchasing new PCs, of which AMD currently derives around 85 per cent of its revenue. According to Gartner (opens in new tab), PC shipments declined 8.3 per cent in the third quarter, a period that’s typically bolstered by back-to-school spending.

“The third quarter has historically been driven by back-to-school sales, but U.S. PC shipments did not increase, not even sequentially, from the second quarter of 2012. Channels were conservative in placing orders,” said Mikako Kitagawa, principal analyst at Gartner.

Does AMD have a trump card?

As we’ve seen time and again, layoffs and restructuring efforts typically indicate the beginning of the end. Yes, AMD has weathered financial storms before, but it no longer has the PC industry to prop itself back up, especially on the budget side.

In fact, AMD announced a hefty $100 million (£62 million) write-down primarily consisting of its first generation A-Series APUs (accelerated processing units), otherwise known as Llano. With PC sales in a slump, there’s little reason to believe that its second generation A-Series APUs (Trinity) will fare much better.

Instead, AMD’s future may rest on its Z-60 processor for high performance tablets and other chips like it. Unfortunately for AMD, not only is it competing against Intel in the tablet space, but also against ARM and its numerous hardware partners, such as Nvidia.

We hate to say it, but this restructuring effort is almost certainly the death knell we’ve all been dreading.