AMD to decimate workforce several times over?

With AMD announcing lowered expectations for the third quarter and CFO Thomas Siefert shown the door or finding the exit on his own a month ago, the talk has turned to what the company will do to get to profitability - and the prospect of deep job cuts.

The Wall Street Journal jumped out in front with the layoff rumors, citing the ubiquitous "sources familiar" to say that plans are in the works to chop somewhere between 20 and 30 per cent of the 11,100 workforce at AMD.

This supposedly follows consultation with McKinsey & Co and Boston Consulting Group on the overall future strategy of the chip maker. Bloomberg followed suit a few hours later, saying that cuts of between 10 and 20 per cent of the workforce. Given those two sets of numbers, anywhere from 1,110 and 3,330 employees could get pink slips if the rumor mill is correct.

AMD spokesperson refused to comment on the speculation about layoffs when contacted by El Reg.

Incidentally, talk of 30 per cent job cuts seems to be a bit extreme and would very likely cut well into bone rather than trimming the fat. AMD announced sales had dropped 10 per cent in the third quarter, which was lower than the expected revenue of down 2 per cent to up 4 per cent it had given in its guidance for the quarter.

That is an 8 to 14 per cent swing, and a lot of that has to do with slumping PC sales ahead of the Windows 8 launch later this month. The PC business is under pressure, and Intel has absolute dominance in x86 servers, but AMD is still selling products and this shortfall simply does not justify a 30 per cent cut in the employee ranks.

Rory Read, the CEO that AMD brought in after a long career at Lenovo and IBM in the PC racket in August 2011, has already done one major layoff during his brief tenure. Back in November 2011, Read gave the sack to 1,400 workers as he started to bring in new technical, marketing, and sales teams to try to position AMD to better fight against rivals Intel and the ARM collective. That was an 11.6 per cent reduction in the AMD workforce, which stood at 12,019 people a year ago. AMD added some employees when it acquired SeaMicro back in February of this year as it seeks to reinvigorate its flagging Opteron server business.

AMD could announce the rumored job cuts when it reports its financial results on October 18, but the sources cited in the WSJ say it could happen on October 25 after AMD's internal review process is completed.

Once the job cuts are done, if they pan out, everyone will start wondering who would – or could – acquire AMD. With its stock hammered down to $2.80 per share, giving it a market capitalization of $1.94bn as El Reg publishes this, AMD is relatively inexpensive if you want to be in the x86 chip biz. As Arik Hesseldhal correctly points out in his All Things D column, any prospective buyer would have to be in a pretty strong negotiating position with Intel to take over AMD because Intel has some say about the transfer of cross-licensed x86 technology agreements with its rival.

What Hesseldhal forgot is that IBM was an original investor in Intel's aspirations in the x86 chip racket and had its own cross-licensing agreements with Intel, which also allowed it to make its own variants of x86 chips. So Big Blue could negotiate with a certain amount of leverage with Chipzilla should it decide that it wants to expand from its Power chips for servers and embedded devices to x86 devices. If IBM is getting the sense that the next generations of game consoles and servers had better be on x86 processors, the company could convince itself that it needed to be an x86 player to support its Power and mainframe server chip habits. It is possible to envision IBM getting out of the fab business, and possibly the x86 server manufacturing business as well, to focus on x86 processors. IBM could shift server manufacturing to Lenovo, sell its East Fishkill fabs to GlobalFoundries, and take a run at making x86 chips for servers, PCs, tablets, and smartphones.

This seems like a pretty remote prospect, of course: Much more remote than an acquisition of Sun Microsystems by IBM three years ago, which was seriously contemplated but ultimately rejected, paving the way for Oracle to eat the Unix upstart and Java owner.

The other outside possibility would be Hewlett-Packard, which must be getting pretty sick of being at the mercy of Intel with its Itanium line and which might be able to gain some sort of edge by acquiring AMD for its server and desktop chips. But HP has so many other issues to wrestle with that it probably does not want to think about owning its own chip biz again. But it would be a fun and interesting possibility, wouldn't it? ®