Following a rough Q1 earnings announcement by Sunnyvale, Calif.-based microprocessor maker Advanced Micro Devices Inc. (AMD), which was called "disappointing and unacceptable" by its CFO with revenue down 30 percent sequentially and 7 percent lower year-over-year, the company is taking corrective action with 430 jobs cuts company-wide.

AMD spokesman Travis Bullard commented, “We are aggressively addressing the issues that led to the revenue decline – including aligning our business model and cost structures, in order to accelerate the return back to profitability.”

At the time of the Q1 report, Bullard noted that AMD had anticipated making a five percent cut of its workforce, which would have equaled approximately 800 employees, however, only about half that number will need to be cut at this time.

The cuts impact positions across departments including sales, marketing, administration and only a few engineering jobs. Close to three quarters of the job cuts are U.S.-based positions, he said.

“This is one measure within the context of many aggressive measures within the business to reduce costs and we think that these efforts will make significant progress to return the company to profitability while continuing to build a highly efficient culture of innovation,” Bullard added.

AMD has not released estimates on how much the job cuts will be worth.

In response to the news, financial analyst Doug Freedman of American Technology Research said in a report, “while we do not know the timing on the job cuts, we believe the move could save the company about $40 million per annum in operating expenses and add 8 cents to the bottom-line.”

Freedman currently has a “Sell” rating on AMD stock.

He also noted, “We view the moves as the first step towards AMD reigning in operating expenses, which have been growing at an unsustainable rate for some time (approximately 40 percent in 2006).”

“Cost cuts are a necessary reaction to the recent nose dive in liquidity the company has experienced. Even with its most recent financing (convertible financing via Morgan Stanley), AMD’s coverage ratios remain stretched and positive cash flow is unlikely anytime soon. We believe the company will continue to seek cost savings opportunities in the near-term, and is looking at completely altering its business model (fab-lite) in the long-run. Even so, the key challenge facing AMD-the resurgence of Intel-is not addressed with cost savings,” Freedman said.

Finally, he noted that Soitec - a key supplier to AMD - said on its earnings call that its results were pressured due to AMD inventory problems.

“The tone was downbeat with respect to a near-term fundamental improvement in ordering from AMD, with guidance for the first half of [fiscal 2008] below expectations. This is the freshest piece of data out on AMD's inventory, and it is a good indication that things still have not improved much for AMD ahead of the Barcelona and R600 launches,” Freedman concluded.

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