Intel, economy hit struggling AMD with one-two punch

After a bad year and pressure from its rival, AMD to cut 10% of workforce

Although Advanced Micro Devices Inc. came out swinging last month with a slew of new products, it wasn't able to hold off a one-two punch from rival Intel Corp. and a sluggish economy, according to analysts.

The chip maker announced Monday that it is set to lay off 10% of its workforce, or about 1,600 employees, by the third quarter of this year in order to cut costs. The company also said it had lowered its revenue expectations for the first quarter of 2008 "due to lower-than-expected sales across all business segments."

It's a tough blow for a company that seemed to be getting back on track after struggling through much of 2007. Last year, it faced delayed product releases, financial woes and a slip in market and mind share. And while AMD struggled, Intel was firing on all cylinders, releasing quad-core chips and a 45-nanometer processor family -- all keeping it well ahead of AMD.

"It's not a happy time for AMD," said Charles King, an analyst at Pund-IT Inc. in Hayward, Calif. "They're in a really tough market with everything going on with the U.S. economy. If you're trying to make a house payment and feed your kids, the last thing you're thinking about is a new laptop. On top of that, they're being pressured by Intel's resurgence in the server space. Combine Intel and the economy and it's a lot of pressure."

Jim MGregor, an analyst at In-Stat in Scottsdale, Ariz., said AMD may be on the road to recovery after the debut of several products in March, but its new chips and chip set simply haven't had a chance to start bringing in any cash -- yet.

"It's good to see them coming out with products, but nobody gains market share immediately," said McGregor. "They won't have an impact on the market for a couple of quarters. And they still have several issues to address.... The worst thing they've done over the past year is go silent. There's an issue with credibility and vision. They need to rebuild both. They have to rebuild credibility in being able to execute their road maps. They need to show that their management has vision about where the industry is going and that they can they support the different markets they're getting into with a broader range of products."

About a week ago, Richard Gordon, an analyst at Gartner Inc. told Computerworld that the global semiconductor industry is in a slowdown that he doesn't see ending anytime soon.

Worldwide semiconductor revenue was up just 3.8% in 2007 over the previous year's levels, according to a report from Gartner. For an industry that's accustomed to double-digit growth, last year's rise was noticeably slight. However, it's something the industry may have to get used to, said Gordon.

"The high growth of the late '90s seems to be in the past now," he said in an earlier interview. "I don't see anything on the horizon that will fuel growth in the near future. We're talking about long-term -- about forever."

McGregor said he doesn't think the chip industry is in as much trouble as Gartner predicts, despite AMD's continued problems. He noted that there are a lot of popular devices on the market and enough interest in them to continue to drive the processor industry.

"Yes, there will be slowdowns, but growth for electronics still looks very positive," he added. "Growing at double-digit rates isn't easy anymore, but you're still looking at a lot of apps and new markets. You're still looking at growth."

Dan Olds, an analyst at Gabriel Consulting Group in Beaverton, Ore., said he has more concerns about AMD in particular than about the chip industry as a whole.

"I've lost a bit of faith in AMD," he said. "I was a huge fan when they came out with Opteron. I'm just wondering now if they can get back on track and execute. That remains to be seen.... If they can get their product out the door, on time, with the performance that gets them back to leadership in the market, they could still be OK this year. The hard part is that they have to beat Intel at the game or they're going to be relegated to being the lower-performance, lower-price second choice."

King, though, doesn't see much good news coming this year simply because the economy is slowing down. "Frankly, I think there's probably more bad news coming on the greater economy," he said. "I would expect that to continue through the rest of 2008, if not further. The big question is if the softer economy will have [an effect] on business IT purchasing decisions. That's what everyone is holding their breath on. There could be worse news coming down the line, and not just for AMD."

Copyright © 2008 IDG Communications, Inc.

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