Why AMD announces layoffs like other technology peers have
Key takeaways for investors from AMD’s 3Q14 earnings review (Part 7 of 11)
AMD announces layoffs to control costs
Lisa Su took over AMD’s (AMD) CEO position after Rory Read announced his departure from the company. On October 16, 2014, along with announcement of its 3Q14 quarterly results, the company also announced layoffs. To read in detail about AMD’s recent management change, please read Market Realist’s series Must-know: Why AMD changed its CEO.
Layoffs have become common in the technology industry as a cost containment effort. 2014 saw leading technology players, Microsoft (MSFT), IBM (IBM), SAP AG (SAP), and HP (HPQ), announcing layoffs as a way to keep check on costs. As the below chart shows, the economic slowdown in 2008 forced many companies to announce job cuts.
Weak future outlook forced the company to cut costs
AMD’s 3Q14 results reported decline in revenues, profits and EPS (earnings per share), with net income taking a massive plunge of ~65%. AMD is struggling to expand its operations beyond its core personal computer (or PC) market. AMD’s expectation about its future revenues added to the disappointment of its investors.
AMD management shared that it expects revenue for 4Q14 to be ~13% lower than 3Q14. The restructuring will lead to $57 million in charges in 4Q14 and will save ~$94 million over the next 15 months. A charge of ~$13 million related to AMD’s real estate is planned for the first half of 2015 to reflect cost reduction.
Layoffs have been a consistent part of AMD’s restructuring efforts
The recent layoff announcements are the latest in a series of disappointments for AMD. AMD has announced two major rounds of layoffs since 2011 under the leadership of its ex-CEO Mr. Rory Read. The current restructuring will trim AMD’s workforce by approximately 7%. The company had ~10,149 employees at the end of the 3Q14, so the workforce reduction will impact about 700 people.
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