AMD Cuts Chip Orders From Globalfoundries Amid PC Slump

Advanced Micro Devices Inc. (AMD), the second-largest maker of personal-computer processors, reduced chip orders from supplier Globalfoundries Inc. as it tries to cut costs to preserve cash amid a PC-market slump.

AMD estimates it will purchase wafers from Globalfoundries for about $115 million in the fourth quarter, the company said in a statement yesterday. The new accord replaces a previous agreement that said AMD would buy $500 million of chips, said company spokesman Drew Prairie.

In October, AMD forecast fourth-quarter sales that fell short of analysts’ estimates, putting the company on course for its fourth consecutive quarterly sales decline. The projection led analysts such as Sanford C. Bernstein & Co.’s Stacy Rasgon to predict that, if the trend continues, cash reserves may fall short of what AMD says it requires.

“Liquidity and cash management remain a key focus for AMD,” interim Chief Financial Officer Devinder Kumar said on a conference call.

The company predicts it will return to generating cash from operations in the second half of next year and can stay close to its target level of $1.1 billion in cash reserves, he said.

Globalfoundries was created as a spinoff of AMD’s manufacturing operations in a purchase by an investment arm of the government of Abu Dhabi. Sunnyvale, California-based AMD has operated under fixed-supply contracts that require it to make set payments to its supplier.

Terminating the contract to reduce the payments will cost AMD $320 million, to be paid off by the end of 2013. Of that total, $80 million will be paid in the current quarter, the company said.

AMD shares rose less than 1 percent to $2.36 at the close in New York. The stock has dropped 56 percent this year.

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