AMD Announces Plan to Restructure Ahead of Earnings Report

AMD is due to issue its Q1 earning report ten days from now, but the company announced today that it will have to restructure its business to compensate for a substantial drop in quarterly revenue. Revenue for Q1 is expected to come in at $1.225 billion USD; down from the projected $1.6 to $1.7 billion USD.

In response to the reduced earnings, AMD will reduce its capital spending by $500 million USD and will “significantly reduce” its discretionary spending. Likewise, the company will limit new hires to “critical” positions.

The restructure comes amidst a resurgent Intel which has been cranking out 65 nanometer quad-core Xeon and Core 2 products while at the same time trimming prices across the board. AMD is still months away from releasing its 65nm response to Intel’s quad-core server processors; however, the company has countered on the pricing front which has resulted in ASP erosion.

“They are seeing not only lower [average selling prices], which we would expect from the ongoing price war with Intel, but also ‘significantly lower unit sales,’ which would imply they are also losing market share,” said BMO Capital Markets analyst Brian Piccioni.

News of the restructure was met positively by analysts. AMD’s restructuring plans are “modestly positive as management is finally addressing its cash flow issues,” said UBS analyst Uche Orji.

As Global Tech News reported in early March, AMD was fully aware that it would miss its projected revenue guidance of $1.6 to $1.7 billion USD for the first quarter ending March 31, 2007 — it was just not known by how much they would come up short by. At the time, AMD CEO Hector Ruiz noted that part of the shortfall was due to a miscalculation on its part for OEM/channel processor distribution.

“In a very short period of time, we went from being four years ago a significant player whose vast majority of products went to the channel distribution and not the OEM channel. In a very short period of time that has flipped to the point now where a vast majority of our products go to OEMs and less to distribution,” said Ruiz at the Morgan Stanley Technology Conference in March. “That sort of transition frankly occurred in our view probably faster than we had planned.”

AMD’s dip in revenue can almost certainly be attributed, at least in part, to the continuing price war between its largest competitor, Intel.  Intel has already announced internally it will continue the war of attrition by cutting the prices of its current generation processors aggressively before AMD debuts its next-genreation K10 architecture. 

However, AMD shows no sign of letting up on the price war either. Just hours after the pledge to reduce spending, AMD also announced it will cut prices on much of its existing processor lineup.