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Do or Die: AMD Moves Away From PCs Amid Steep Losses

By - Source: Tom's Hardware US | B 130 comments

Historically, AMD has surprised analysts and investors with a better than expected quarter result in 20 of the past 48 earnings calls. Today's was not one of those calls, but there was still a surprise.

The plain numbers of AMD's Q3 result look dramatic. Revenue of $1.27 billion was down 10 percent sequentially and 25 percent year over year. The net loss was $157 million compared to a net profit of $97 million in Q3 2011. Rory Read, who has been CEO of AMD since August 2011, released the following statement as comment:

"The PC industry is going through a period of very significant change that is impacting both the ecosystem and AMD. It is clear that the trends we knew would re-shape the industry are happening at a much faster pace than we anticipated. As a result, we must accelerate our strategic initiatives to position AMD to take advantage of these shifts and put in place a lower cost business model. Our restructuring efforts are designed to simplify our product development cycles, reduce our breakeven point and enable us to fund differentiated product roadmaps and strategic breakaway opportunities."

Lowering the cost of the business model has, of course, to do with layoffs. Subjectively, AMD has been in restructuring since the time Read joined the company. About 1,400 people were laid off beginning in November of last year and there has been an ongoing replacement program for people who left AMD over the past year, shaking up AMD's on-hand talent in virtually all business fields. About a year ago, AMD employed a head count of 11,737 at the end of June. This restructuring round will bring the head count down 15 percent to just under 10,000 people. AMD expects to save about $190 million per year as a result.

Read explained during the earnings call that the entire cost reduction approach is targeted to help AMD achieve a lower breakeven point at $1.3 billion revenue per quarter. He expects the company to achieve this revenue base by Q3 2013, which means that there will be four more quarters of expected losses for AMD - which is not necessarily a safe game, given AMD's deteriorating cash. The company has $1.3 billion available, down from $1.58 billion three months ago. If the decline gets even worse, AMD could be in serious trouble.

However, Read said that he understands what the problem is and there is a strategy in place to fix it. While the company was able to gain some market share in mainstream notebooks, according to the executive, lower end PC sales are very weak at this time, while tablet sales are growing quickly. He also echoed Intel's note that vendors are taking a cautious approach toward the launch of Windows 8. Both AMD and Intel are not exactly enthusiastic about the Windows 8 launch opportunity, which will most certainly increase the concerns over Windows 8's ability to relight the fire of the PC market.

Reads idea is to be less vulnerable to those problems, especially because he does not believe that the PC market will return to normal growth for "several quarters". As a result, he is not only reducing AMD's cost, he is also moving away from the PC market as a whole. "40 to 50 percent" of AMD's future business will not be focused on PCs. Instead, he will aim half of AMD's business three areas: At servers, which will leverage AMD's own CPUs, "third-party" CPUs, and will count on SeaMicro's server fabric to provide custom solutions. Another area will be "semi-custom" APUs for the gaming, industrial and communications market and AMD will be aiming its APUs at ultramobile devices. Despite the reduced headcount, Read believes this is possible by reusing its technology across more platforms and by simplifying product development cycles.

Will it work? Your guess is as good as any, but Read says that his recipe will work by Q3 2013. So, he has given himself and the new AMD about a year. If it does not work, AMD will have run out of money and confidence - and potentially beyond repair.


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Top Comments
  • 30 Hide
    division_9 , October 18, 2012 10:33 PM
    I hope Rory read gets it right, nothing more depressing than an Intel/Nvidia monopoly. Unless of course you count VIA.
  • 29 Hide
    back_by_demand , October 18, 2012 10:33 PM
    A lot of HTPCs benefit from AMD APUs, great little machines that don't need i7 power, if they hit that market hard and kept up the pressure in the games console market they are onto a winner - but really they need a big entry in the tablet market, if x86 Windows 8 Pro defies all negative press and sells like hotcakes then AMD need to have a tablet CPU (or APU) alternate to the i5 very quickly or Intel may well tie up another virtual monopoly
  • 27 Hide
    maestro0428 , October 18, 2012 10:44 PM
    He's right. Media consumption is moving to the mobile environment. Problem is, you can't make media on a tablet or smart phone. We will always need desktops for media creation. My wife hasn't been on her PC since I bought her an iPhone and iPad. That's almost a year. Of course I am on my pc everyday day for several hours. It would be sad to see AMD pull out, especially out of the graphics market where they are very competitive.
Other Comments
    Display all 130 comments.
  • 26 Hide
    fazers_on_stun , October 18, 2012 10:25 PM
    My guess is that de-emphasizing PCs means much less focus on desktop CPUs, so Steamroller might get delayed considerably..
  • 30 Hide
    division_9 , October 18, 2012 10:33 PM
    I hope Rory read gets it right, nothing more depressing than an Intel/Nvidia monopoly. Unless of course you count VIA.
  • 29 Hide
    back_by_demand , October 18, 2012 10:33 PM
    A lot of HTPCs benefit from AMD APUs, great little machines that don't need i7 power, if they hit that market hard and kept up the pressure in the games console market they are onto a winner - but really they need a big entry in the tablet market, if x86 Windows 8 Pro defies all negative press and sells like hotcakes then AMD need to have a tablet CPU (or APU) alternate to the i5 very quickly or Intel may well tie up another virtual monopoly
  • -9 Hide
    loops , October 18, 2012 10:38 PM
    Question is, do most ppl need a faster CPU?

    Question is, do most ppl want more mobile CPUs?
  • -8 Hide
    jhansonxi , October 18, 2012 10:40 PM
    back_by_demandA lot of HTPCs benefit from AMD APUs, great little machines that don't need i7 power, if they hit that market hard and kept up the pressure in the games console market they are onto a winner - but really they need a big entry in the tablet market, if x86 Windows 8 Pro defies all negative press and sells like hotcakes then AMD need to have a tablet CPU (or APU) alternate to the i5 very quickly or Intel may well tie up another virtual monopoly
    They could be in the tablet market now with Android but they have the same problem as Intel - x86 is too inefficient for mobile. While AMD has GPUs to fall back on, Intel has much better diversity throughout their product lines.
  • -8 Hide
    AstroTC , October 18, 2012 10:43 PM
    Lets help AMD!! Buy a AM3+ CPU!!
  • 26 Hide
    esrever , October 18, 2012 10:44 PM
    So more than 50% of their business is still going to be PC. Doesn't seem bad. Considering the market AMD can gain in servers/cloud and tablets, this could be an optimistic thing.
  • 27 Hide
    maestro0428 , October 18, 2012 10:44 PM
    He's right. Media consumption is moving to the mobile environment. Problem is, you can't make media on a tablet or smart phone. We will always need desktops for media creation. My wife hasn't been on her PC since I bought her an iPhone and iPad. That's almost a year. Of course I am on my pc everyday day for several hours. It would be sad to see AMD pull out, especially out of the graphics market where they are very competitive.
  • 15 Hide
    gto127 , October 18, 2012 10:45 PM
    I don't know about you guys but I don't like the sound of this. "AMD moving away from PCS" I can't imagine a market of intel only CPUS. We can do something about this folks. I'm ordering a AMD APU & motherboard. I would reccomend everyone that reads this do the same & pass the word on & tell your friends to do the same. Money talks & if we order enough then mabye they will continue to sell CPUS for PCS. If the only choice is Intel then the price will go UP UP UP & will become a very niche market. Let's keep the PC market alive. Who's with me?
  • 14 Hide
    m32 , October 18, 2012 10:47 PM
    It is going to be very upsetting if AMD doesn't do something in the 4th quarter this year. The new processors should be a good price and they knock down the prices of the other CPUs.
  • 15 Hide
    kronos_cornelius , October 18, 2012 10:53 PM
    AMD should forget about the stand alone CPU and focus on the APU chips for tablets and servers.

    It should also work to get into the ARM business.

    I hope AMD makes it out of the tailspin.
  • 21 Hide
    abbadon_34 , October 18, 2012 10:54 PM
    no please noooo
  • 15 Hide
    Anonymous , October 18, 2012 10:54 PM
    Errrr... Nice spin, Tom's.

    Historically, haven't they always had that 50/20/20/10/... PC/Server/Console/Graphics/Whatever?

    You act as if they are new to servers or gaming consoles, this is hardly a deviation from what they were already doing, Rory is just stating it in a "don't worry, I'm handling it" kind of way...
  • 1 Hide
    pacioli , October 18, 2012 11:00 PM
    Not good! If AMD fails CPU and GPU markets will be affected. This is a case of having too many eggs in one basket...
  • 21 Hide
    A Bad Day , October 18, 2012 11:04 PM
    baconeaterIntel desktop Processors are now gonna be 5x the price with no competition.


    Intel has no answer for APUs, and you can't stick an i7 in a tablet. It won't work.
  • 7 Hide
    snemarch , October 18, 2012 11:09 PM
    I'm sad to see how AMD has deteriorated since they launched the kick-ass original AMD64.

    But outside of budget CPUs, IMHO they just haven't delivered anything very interesting the last many years - couple that with a marketing department that has been outright lying (across multiple "oops, let's scapegoat and find a new head" attempts), and you've got a really icky situation.

    I think AMD needs to figure out what their raison d'être is, and fast. Intel has the crown for both performance and power consumption, and AMD just doesn't have anything really competitive (for the segments I'm interested in, anyway - high-end-but-not-too-bad-power-consumption desktop and low-power-consumption-when-most-idle-but-muscle-for-peaks server). Worst thing is, Intel CPUs don't even seem to be that much more expensive than AMD anymore when you consider performance/price ratios rather than just price :/ 

    What's going to happen to prices if AMD goes bust? Especially since most people have "fast enough" machines now, the speed increase is stagnating, and a lot of people don't really need anything more than consumer devices (and possibly consoles for gaming needs) - the future could end up pretty darn expensive for us developers and content producers. And I'm slightly ashamed that my recent server build means my total builds are now skewed even further away from a 50/50 between Intel and AMD.
  • 18 Hide
    bystander , October 18, 2012 11:17 PM
    A Bad DayIntel has no answer for APUs, and you can't stick an i7 in a tablet. It won't work.

    I'm not sure about that. The i7 part. I know they are putting i5's in the MS Surface Pro. There isn't much difference between an i5 and i7.

    I do agree that mobile APU's could be something AMD shines at.
  • 6 Hide
    iam2thecrowe , October 18, 2012 11:21 PM
    I think AMD needs to be sold to another company who can do something with them, before they dig themselves a hole they cant get out of. No one can deny it is the continued pursuit of this inefficient bulldozer architecture that has led to their downfall. They should have just dropped it and gone back to the old faithful Phenom II core and tweaked it.
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