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AMD to cut jobs
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September 25, 2001: 3:06 p.m. ET
Chipmaker to close plants, cut 2,300 jobs; loses Gateway business
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NEW YORK (CNNfn) - Chipmaker Advanced Micro Devices on Tuesday said it plans to close two of its manufacturing plants, and cut roughly 2,300 jobs, as it continues to struggle with slack demand and increased price competition from market leader Intel.
The Sunnyvale, Calif.-based company said it will close its two chip making plants in Austin, Texas, and lay off their 1,000 employees. The remaining 1,300 job reductions will come from its operations in Penang, Malaysia, AMD said.
AMD (AMD: down $0.70 to $9.11, Research, Estimates) said it expects to record a one-time charge of between $80 million and $110 million in connection with these plans during the current quarter. The company said it expects to save roughly $125 million in annual costs.
AMD runs a distant second to Intel in the market for PC microprocessors and flash memory chips. The company, whose Athlon and Duron line of processors have been pecking away at Intel's market share, has been especially hard hit by a protracted slump in demand for flash memory chips and intense price competition in the PC processor market.
To counter the growing competitive threat, Intel has been aggressively pricing its Pentium 4 processors, and AMD has responded in kind.
While the price war has left scars on each company, AMD's wounds have been more severe than its larger, deep-pocketed rival. When AMD reported its latest quarterly results in July, executives said the increased pricing pressure will likely result in an operating loss for the quarter, where recently they had expected to remain profitable.
They said they would intensify cost-containment efforts during the quarter and reduce or eliminate costs that would negatively affect its near-term outlook without affecting its longer-term strategy.
AMD said Tuesday that the plants its closing are ones where it primarily manufactures other companies' chips on a contract basis.
"These actions will allow us to reduce costs without impairing our new product development activities in pursuit of long-term growth opportunities," AMD Chairman and Chief Executive Jerry Sanders said in a statement.
"We will focus our organization around our two most promising opportunities – flash memory devices and PC processors," Sanders added.
Separately, embattled PC maker Gateway (GTW: down $0.18 to $5.99, Research, Estimates) said Tuesday it will phase out all of its systems based on AMD processors as part of its broader cost-cutting efforts.
Over the next few months, Gateway will phase out its "Select" line of desktop computers, which currently are the only AMD-based systems it offers, according to Gateway spokeswoman Lisa Emard.
"We're consolidating all of our offering behind Intel, which was the biggest part of our mix already," Emard said.
Gateway last month announced plans to lay off roughly 25 percent of its global work force as part of a broader restructuring aimed at narrowing its marketing focus and cutting costs.
Emard said Gateway is trying to simplify all of its product lines and reduce the number of component suppliers it uses in order to maintain better control over its product reliability and customer service and enhance customer satisfaction.
"And, ultimately, it helps us reduce some of the costs in our manufacturing and engineering processes," she said. 
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