Advanced Micro Devices Inc. said Monday it will revamp its business plans in the aftermath of a deep decline in first-quarter revenue.
The chipmaker disclosed that its revenue for the quarter will be about $1.23 billion, or about $400 million less than it forecast in January, because of sluggish demand for its chips and falling prices.
AMD is the second-largest maker of processor chips for computers and of graphics processing chips. The company, which has made considerable share gains against archrival Intel Corp. in the past two years, was hurt late last year as Intel rolled out strong products and started aggressive price cutting.
In reaction to poor first-quarter results, AMD said it will reduce its capital spending by $500 million this year without significantly affecting its production capacity. It also will reduce discretionary spending and will cut hiring except to fill critical positions.
The chipmaker also may consider head-count reductions of as high as 5 percent, as it aims to bring costs in line with lower average product prices, a spokesman said.
AMD employs about 16,700 people worldwide and added about 5,000 workers last fall, when it bought ATI Technologies Inc. for about $5.4 billion.
The company’s talk of cutting costs appeared to please investors as AMD’s stock rose 49 cents a share, or 3.8 percent, to close at $13.35. Volume was about twice typical levels.
The stock is down 60 percent in the last year.
AMD had sales of $1.77 billion and lost $574 million in the fourth quarter of 2006, when it took $550 million in charges tied to its acquisition of ATI.
AMD has been hit by inventory reductions at computer-makers and retailers as they adjust to lackluster response to Microsoft’s Vista operating system.
Several companies bought extra products in preparation for the Vista launch and now are scaling back, a move that affects AMD sales in the quarter, said analyst Cody Acree with Stifel, Nicolaus & Co. in Dallas.
AMD is likely to lose market share to Intel for much of this year, Acree said, because the company’s only substantial new products are its Barcelona server chips, which are expected to be launched this year.
Acree said a workforce reduction would make sense.
“If revenue is two-thirds of what you thought it would be and spending is based on revenue assumptions, then you have to adjust” to lower revenue levels by cutting costs, Acree said.
The analyst now projects that AMD won’t regain profitability until the second half of 2008. He lowered his estimate of AMD’s 2007 revenue to $5.5 billion from his previous estimate of $6.6 billion.
AMD said last month that it will delay the move-in to its new, $270 million campus in southwest Austin from August until early next year to save costs.
