Windows 8 and the holidays have failed to give PC makers the usual yearly bump in sales, and now Advanced Micro Devices is paying the price. The company announced yesterday that it has reduced its chip manufacturing orders for the last three months of the company’s 2012 fiscal year by more than 75 percent, and it will pay a heavy penalty for the changes.
In a new agreement signed with manufacturing partner GlobalFoundries, AMD reduced its promised silicon wafer purchases to just $115 million, down from $500 million, while agreeing to pay a $320 million penalty for the order change over the next year. AMD spun off GlobalFoundries in 2009, and in March of 2012 it sold off its remaining stake in the company, leaving an investment arm of the government of the United Arab Emirates as the company’s sole owner.
The move is part of an emergency plan to keep AMD’s cash on hand up as revenues continue to slide. On a conference call yesterday, AMD interim Chief Financial Officer Devinder Kumar said, “Liquidity and cash management remain a key focus for AMD.” The chipmaker is still looking for a permanent CFO to fill the gap left by Thomas Seifert, who bailed on the company in September “to pursue other interests.”
Screwed?
One of the biggest problems for AMD is that PC sales have plunged and demand for its processors has shrunk. In October, Gartner said that global PC shipments had fallen for the third quarter of the year by 8.3 percent from the same period in 2011. In research released on December 6, IHS iSupply projected that the global semiconductor sales would decline by 2.3 percent for 2012—largely because of lessened PC sales and the poor condition of the global economy.
AMD is getting hit with a disproportionate share of the losses in sales mostly as a result of its already poor market position. In October, Evercore Partners analyst Patrick Wang told Bloomberg that because the company’s competitive position is already so weak, “When demand declines, AMD is the first to go.” AMD has had little luck penetrating the expanding tablet market—and it continues to lose ground against Intel in the desktop, notebook, and server markets.
“The PC industry is going through a period of very significant change that is impacting both the ecosystem and AMD,” said AMD President and CEO Rory Read in the company’s prepared statement. “It is clear that the trends we knew would reshape the industry are happening at a much faster pace than we anticipated.”
The company saw rough seas ahead back in October when it projected a year-over-year drop in sales of 9 percent for the last quarter while announcing restructuring that would cut about 15 percent of AMD’s workforce. CEO Read said that in order to deal with that much more rapid sinking, AMD would have to accelerate that restructuring, reduce costs, and simplify development efforts to get more products out the door faster. The company’s goal is to reduce costs enough so that it can break even on income of $1.3 billion per quarter, and hopes to complete those changes by October of 2013—meaning it will be over a year before the company projects returning to profitability.
via AMD puts brakes on chip manufacturing as sales plummet | Ars Technica.