AMD to cut expenses $350M, seeks profit by Q4 of 2004

Advanced Micro Devices Inc. will experience growth in all of its businesses amid a tentative semiconductor recovery in 2003, but it will have to endure a large restructuring charge and cut staff to get to that point, company executives said Thursday at a meeting with analysts.

The company announced it is developing a plan to reduce its expenses by US$350 million over the next year, giving the company a better chance of achieving AMD's goal of profitability by the end of 2003, said Robert Rivet, senior vice president and chief financial officer. The company will look to cut around $100 million a quarter, starting with a plan to reach breakeven EBITDA (earnings before interest, taxes, depreciation and amortization) in the current quarter, Bob said.

AMD will need to take a restructuring charge of "several hundred million dollars" in the fourth quarter of this year, due to outsourcing of certain activities and employee cuts, Rivet said.

The $350 million in reductions will come from cuts in operating expenses, research and development, sales and marketing and other support functions such as human resources and finance, he said.

Reports circulated this week of 10 percent to 20 percent cuts in AMD's workforce of 13,000 employees, but President and Chief Executive Officer Hector Ruiz refused to confirm those numbers.

"For us to meet our projections of breakeven EBITDA in the fourth quarter (of 2002), it's inevitable that people will have to go. We intend to communicate that to our people first" before releasing specific layoff numbers, he said.

AMD's capital expenditures will be $750 million for 2002, and that number will drop further to $600 million in 2003 as part of AMD's restructuring efforts, Rivet said. By comparison, rival chip maker Intel Corp. said this week its 2002 capital expenditures will be about $4.8 billion.

The company expects fourth-quarter revenue to grow 20 percent over the third quarter, according to AMD, but the fourth quarter is a seasonally strong period for PC and processor manufacturers thanks to holiday sales.

The past year has not been kind to AMD, and it was clear to many industry analysts that a change was needed. As Rivet admitted, "without any corrective actions, we are not going to be financially healthy."

The company also needs to continue winning business from OEMs to achieve profitability, several executives said. AMD becomes more attractive to its customers if it can offer products for the commercial market in desktop, mobile, and server machines, said Dirk Meyer, group vice president of the computational products group, which develops and manufactures its PC processors.

The best way to accomplish that enterprise growth will come from the introduction of its 64-bit Hammer processors for both desktops and servers in the first half of 2003, said Meyer. The server version of the Hammer chip, the Opteron, will outperform Intel Corp.'s Xeon processor for smaller servers, he said.

And once those companies are ready for 64-bit computing, recompiling their applications for Opteron will be much easier than for other competing 64-bit solutions, such as RISC (reduced instruction set computing) chips or Intel's Itanium processor, Meyer said.

Several executives from AMD's business lines stressed the importance of Asia to the company's future. Much of the growth in the IT industry is predicted to come from Asia, and specifically China, over the next few years, and AMD is keen on capitalizing on that market, they said.

Several other topics were discussed at the meeting:

-- AMD's Athlon XP processors will get significant performance boosts from the introduction of the higher-cache Barton core and desktop Hammer processors in the first quarter of 2003.

-- AMD plans to bring its process technologies down to 90 nanometers by the fourth quarter of 2003, qualifying its forthcoming Opteron chips on the smaller process technology and shipping 90 nanometer Opteron chips by the first quarter of 2004, said William Siegle, senior vice president of technology operations and chief scientist. The company will fully convert its Dresden, Germany, fab to 90 nanometer technology by the middle of 2004, he said. This smaller process technology will allow AMD to lower its manufacturing costs and at the same time make chips that are more powerful and consume less power.

-- The company will introduce a Mobile Athlon XP chip for the thin-and-light notebook category in the fourth quarter of this year, and will refresh its mobile products with the higher-cache Barton core due out in the first quarter of 2003, Meyer said. Hammer technology will follow in notebook processors by the middle of 2003, with Hammer processors in thin-and-light notebooks after the company converts to 90 nanometer process technologies in 2004, he said.

-- AMD is expecting a strong fourth quarter from its flash memory business, with strong shipment growth in high-end cell phones, said Bertrand Cambou, group vice president of AMD's flash memory group. Flash memory can store information without a constant source of electrical power, which makes it ideal for small handheld devices, and products like PC cards.

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