AMD Forecast Misses Estimates; to Cut 15 Percent of Staff

Advanced Micro Devices Inc., the second-largest maker of processors for personal computers, forecast fourth-quarter sales that will miss analysts’ estimates and said it will cut 15 percent of its staff.

Revenue will fall 9 percent, plus or minus 4 percent, in the current quarter from the prior period, the company said today in a statement. That indicates sales as low as $1.1 billion, compared with an average analyst estimate of $1.31 billion, according to data compiled by Bloomberg.

AMD’s outlook adds to evidence that PC makers and their suppliers are being battered by a weak economy and a shift in consumer spending to tablets and smartphones -- getting scant relief from holiday sales that usually kick in this time of year. AMD is overshadowed by larger rival Intel Corp., which has 80 percent of the PC-chip market and is using its resources to push into mobile devices, an area now dominated by ARM Holdings Plc’s technology.

“AMD is going to lose first,” said Kevin Cassidy, an analyst at Stifel Nicolaus & Co. “If anybody’s got a problem with ARM, it’s AMD.”

The Sunnyvale, California-based company said the job cuts, expected to be completed in the fourth quarter, will result in expenses of $80 million.

The stock, the worst performer on the Philadelphia Semiconductor Index this year with a decline of 51 percent, fell 5.4 percent to $2.62 at the close in New York. On Oct. 11, the company disclosed that third-quarter sales had fallen short of its earlier predictions. That also led to Standard & Poor’s placing the company’s BB- credit rating on watch for a possible downgrade.

Surprising Speed

AMD underestimated the rate at which tablets and phones would begin to hurt the PC market, which provides the company with 85 percent of its revenue, and the company needs to accelerate changes that will make it less reliant on that business, Chief Executive Officer Rory Read said on a conference call with analysts. AMD is going to introduce new products aimed at winning sales in the video-game, communications and industrial-equipment markets.

“We underestimated the speed of change in our industry and expected to have several years to transform AMD’s business,” he said. “We must implement our transformation on a more aggressive timeline.”

Beyond PCs

The company is aiming to boost the portion of sales it gets from businesses other than PCs to 20 percent by the fourth quarter of 2013, Read said. The job cuts, which will save the company $190 million next year, will help AMD to be able to break even on quarterly revenue of $1.3 billion, he said.

Intel earlier this week forecast fourth-quarter gross margin that missed analysts’ projections and sales that may decline from a year earlier for the first time since 2008. The world’s largest chipmaker said it is taking market share in cheaper PCs, traditionally an area of relative strength for AMD.

Both companies are facing incursions by tablet devices. Adding to the threat, Microsoft Corp. will debut a version of its Windows operating system on Oct. 26 that runs on alternative chip technology from ARM. Qualcomm Inc. and Nvidia Corp. are making processors that will run competing devices.

AMD said its third-quarter net loss was $157 million, or 21 cents a share, compared with net income of $97 million, or 13 cents, a year earlier. Sales fell 25 percent to $1.27 billion. Analysts had on average predicted a loss of 22 cents on revenue of $1.27 billion.

The total PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS iSuppli. That’s the first annual decline since 2001, the market researcher said earlier this month.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.neT

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