AMD is due to issue its Q1 earning report ten days from now,
but the company announced today that it
will have to restructure its business to compensate for a substantial drop
in quarterly revenue. Revenue for Q1 is expected to come in at $1.225 billion
USD; down from the projected $1.6 to $1.7 billion USD.
In response to the reduced earnings, AMD will reduce its
capital spending by $500 million USD and will "significantly reduce" its
discretionary spending. Likewise, the company will limit new hires to
The restructure comes amidst a resurgent Intel which has
been cranking out 65 nanometer quad-core Xeon and Core
2 products while at the same time trimming prices across the board. AMD is
still months away from releasing its 65nm response to
Intel's quad-core server processors; however, the company has countered on
the pricing front which has resulted in ASP erosion.
"They are seeing not only lower [average selling
prices], which we would expect from the ongoing price war with Intel, but also
'significantly lower unit sales,' which would imply they are also losing market
share," said BMO Capital Markets analyst Brian Piccioni.
News of the restructure was met positively by analysts.
AMD's restructuring plans are "modestly positive as management is finally
addressing its cash flow issues," said UBS analyst Uche Orji.
As DailyTech reported in early March, AMD was
fully aware that it would miss its projected revenue guidance of $1.6 to $1.7
billion USD for the first quarter ending March 31, 2007 -- it was just not
known by how much they would come up short by. At the time, AMD CEO Hector Ruiz
noted that part of the shortfall was due to a miscalculation on its part for
OEM/channel processor distribution.
"In a very short period of time, we went from being
four years ago a significant player whose vast majority of products went to the
channel distribution and not the OEM channel. In a very short period of time
that has flipped to the point now where a vast majority of our products go to
OEMs and less to distribution," said Ruiz at the Morgan Stanley Technology
Conference in March. "That sort of transition frankly occurred in our view
probably faster than we had planned."
However, AMD shows no sign of letting up on the price war either. Just hours after the pledge to reduce spending, AMD also announced it will cut prices on much of its existing processor lineup.