AMD shuts fabs, fires 2,300

Slams on the brakes

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Yesterday, New York investment bank Thomas Wiesel Partners noted that AMD was, in terms of sales performance, riding the PC recession rather better than Intel its bigger and richer rival(this is relative - Intel still sells three times as many CPUs and at higher average prices).

Today, AMD announces that it is shutting down two plants, Fab 14 and Fab 15, in Austin, Texas and cutting back in Malaysia, with the loss of 2,300 jobs, in total.

One thousand of the earmarked jobs-to-go are based in Austin, and all the redundancies will be implemented by the end of Q2, 2002.

The cuts, equivalent to 15 per cent of the company's workforce, will produce annual savings of $125m, AMD says. It will take a charge this quarter of between $80m and $110m to cover the reorg and other unspecified special costs.

In a statement, Jerry Sanders, AMD chairman and CEO, said the move "will allow us to reduce costs without impairing our new product development activities in pursuit of long-term growth". The fabs to close are the company's oldest, and they don't make CPUs.

Gateway barred

All in all, not a good day, especially with reports that Gateway, a relatively recent convert from the Intel-only fold is to stop selling AMD PCs. AMD points out that Gateway continues to sell an AMD machine, the Gateway Select 1400. But it makes for unwelcome PR.

Last month, AMD suffered reverses when Tiny, the UK's biggest indigenous PC maker, and Micron Electronics, both recent AMD converts, announced plans to withdraw (Tiny) or scale back (Micron) from selling Athlon-powered machines. IBM also announced it was to stop selling AMD-powered machines, except in Asia.

According to AMD, the latter had little impact, as IBM had not been a significant customer for some time. Of course, AMD is telling the truth, but the decisions of some customers to publicly announce their withdrawal of allegience is bad for marketing. Late last year, and earlier this, the momentum behind Athlon looked unstoppable. It now looks, well, stopped. And it's back to hand-to-hand fighting between Intel and AMD in the system builder trenches.

Flash Crash

In recent times, well within our living memory, AMD was noted for regular missteps when it came to execution. AMD has turned its reputation around since the launch of the Athlon. And deservedly so.

But that's of little comfort in this severe downturn. It's all very well gaining market share, but when average selling prices are falling, PC unit sales falling, when Intel is showing increasing aggressiveness on price, and no whiff of an upturn in the air, then cutbacks have to be the order of the day.

Unfortunately, AMD can no longer rely on flash memory, its historic cash cow. In August, AMD sales chief Rob Herb announced the firm anticipated a 30 per cent fall in flash memory sales for Q3, compared with the same period last year. ®

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