Advanced Micro Devices Inc share price up, plans to cut workforce

Advanced Micro Devices Inc. announced layoffs with the new CEO wasting little time to cut expenses as the chipmaker struggles to expand beyond its core personal computer market.

The Sunnyvale, California-based company announced on Thursday a 7% employee trim, a week after Lisa Su, Chief Operating Officer, took Rory Reads place as Chief Executive, a surprising move that caused speculation around AMDs current state. Those are the third major job cuts since 2011.

At the end of the third quarter the chipmaker had 10 149 employees, meaning that around 700 people will be affected by the layoffs as part of a reconstruction plan aimed at saving $94 million over the next 15 months.

AMD released the news as it reported its quarterly results that included a 65% drop in net income from a year earlier. The company generated a net income of $17 million, or 2 cents per share, down from $48 million a year earlier, or 6 cents a share. Revenue slightly declined to $1.43 billion from $1.46 billion in Q3 2013, but the company also predicted a 13% drop in revenue in the current quarter compared to the three-month period ended September.

Revenue growth of 21% in chips for video consoles and servers, a segment dominated by AMD, were outweighed by a decline in the PC market, highly controlled by Intel Corp.

Ms. Su told analysts that the company has landed two unnamed customers that should bring about $3 billion in revenue over three years. “We know what we need to do to improve performance and are taking appropriate action” she said on a conference call.

The chipmaker said it will take restructuring costs of $57 million in the current quarter, while a $13-million charge is planned for the first half on 2015 to reflect cost reduction related to its real estate.

JoAnne Feeney, an analyst at ABR Investment Strategy, said restructuring is a good idea in general, “however I am concerned that in paring back further, the company may be compromising their efforts at research and development, and therefore future growth.”

AMD reported an annualized 16% revenue drop in its computing and graphics unit and a $17 million operating loss in the segment, compared to last year, when the company was above water and stated a $9 million income.

Analysts believe that Intel is gaining ground on AMD in the PC market as the Santa Clara-based company reported a revenue growth of 9% in PC chips and a 21% increase in chip sales made for notebooks.

Advanced Micro Devices Inc. climbed 1.15% on Thursday to close at $2.64 in New York, marking a 35.45% one-year fall. The company is valued at $2.03 billion. According to the Financial Times, the 20 analysts offering 12-month price targets for Advanced Micro Devices Inc. have a median target of $4.00, with a high estimate of $6.00 and a low estimate of $2.50. The median estimate represents a 51.52% increase from the last price of $2.64.