AMD shake-up may be harbinger of major restructuring

With executives coming and going, analysts say fab part of AMD's business may face shake-up

An executive shake-up at Advanced Micro Devices Inc. earlier this week has left some analysts speculating that the move may be a prelude to a major corporate restructuring.

The chip manufacturer, which struggled through losses and product delays last year, has hinted in recent months that it may change its asset strategy to lighten what Wall Street analysts have said is a heavy financial burden on the company.

This week's announcement that the head of AMD's computing solutions group is leaving the company, coupled with the resignation of CTO Phil Hestor last month, could indicate that major changes are imminent, analysts said.

During an earnings call with the press and analysts in April, AMD CEO Hector Ruiz would only say that he hoped to be able to start talking about changes any time between "the next 90 days to the rest of the year."

"The [executive shake-up] is representative of the fact that they're restructuring into what the next version of AMD is going to be," said Dean McCarron, an analyst at Mercury Research Inc. "I would expect people to be moved, leading up to whatever the changes might be. This is a response to what Wall Street was pressuring them to do a year ago. They've been pushing them to go with an asset light strategy because they viewed their expenses as being a drag on the company."

Drew Prairie, a spokesman for AMD, confirmed to Computerworld that a restructuring is coming, but he declined to provide any details."It's an activity we're pushing as hard and as fast as we can," said Prairie. "The [executive changes] are related to the restructuring of our business moving forward. In one sense, it's all interrelated."

AMD also announced at the beginning of the second quarter this year plans to cut its workforce by 10% by the end of the third quarter.

"We're transforming the company," said Prairie.

What that transformation will be is the big question.

Analysts expect both relatively small changes, such as cutting the consumer electronics products gained in its purchase of ATI, and major ones that could affect significant assets, such as its fab plants.

Altering the company's assets — what AMD is calling its "asset smart strategy" — could entail splitting the company into different divisions, spinning off part of it into a new company, selling or consolidating its fab plants or abandoning manufacturing altogether, analysts said. The company also could take on an investor or partner that would lift some of the financial burden of running the fab plants, they said.

"I do think there will be a major change in their manufacturing strategy," said Jim McGregor, an analyst at In-Stat. "Something is going on with their fabs. How they'll work it, I don't know."

Both McGregor and Rob Enderle, president of Enderle Group, said it would be difficult for AMD to get rid of the fabs completely. The company's license agreement with rival Intel Corp. mandates that AMD run fab facilities, they noted. And in some cases, local governments have provided tax incentives for running fab plants.

"AMD is clearly looking at its manufacturing costs and realizing they need to reduce them," said Enderle. "We may see some fab consolidation, but I don't see them going fabless. I just don't see how they could do it. Speculation is running along the lines of something dramatic."

Dan Olds, an analyst at Gabriel Consulting Group, said whatever move AMD is making, he's simply glad it is taking action.

"It's hard to tell from the outside looking in if these are the right moves or not, but AMD clearly has to shake things up in order to get back on track," added Olds. "It's a good thing. It shows they recognize problems and are taking action. However, this won't lessen the pressure to perform, but [it's] absolutely a good thing."

(Agam Shah of the IDG News Service contributed to this story.)

Copyright © 2008 IDG Communications, Inc.

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