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Tickers in this Article: INTC, NVDA, AMD
Advanced Micro Devices Inc. (AMD) plans to eliminate 15% of its workforce or about 1,800 jobs in order to reduce operational costs. This layoff is an attempt by AMD to optimize its cost structure and thereby improve its competitiveness. The workforce reduction is expected to be over by the end of the year 2012. Along with other unspecified operational changes, the layoffs are expected to reduce the cost base by 25% and generate total annualized cost savings of around $190 million in 2013. The new structure will enable the company to break even in the third quarter of 2013 at a quarterly revenue level of $1.3 billion.

Management is looking to reinvest some of the savings into newer business areas, such as tablet-style computers in emerging markets, site consolidations and Internet-related opportunities (mainly cloud computing).

Advanced Micro has been suffering from the slowdown in the global PC market along with the delay in launching new chips due to manufacturing hiccups this year. We believe that the weak computer market and the company's failure to penetrate the new mobile device market have forced it to refine its cost structure.

The announcement came as part of AMD's third-quarter 2012 earnings release. The company reported a very poor quarter, with a significant net loss that was the combined effect of weak demand, inventory write-down and productivity issues. The company's third-quarter sales of $1.27 billion was down 10.2% sequentially and also below the consensus estimate of $1.28 billion.

Worldwide PC sales have been stagnant, while smartphones, tablets, and other mobile devices experienced strong growth. In order to stay ahead of its rivals like Intel Corp. (INTC) and NVIDIA Corp. (NVDA), we believe Advanced Micro needs to enter emerging markets.

Advanced Micro shares currently carry a Zacks #5 Rank, implying a Strong Sell rating in the short term (1-3 months).

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