Advanced Micro Devices, Intel's main rival in the increasingly competitive microprocessor market, said Monday it expected a "significant loss" in its first quarter because of manufacturing problems with its core K6 family of chips.
The company also said it would cut 300 jobs over the next two quarters, which will result in a charge against earnings in the first quarter, ending March 28, and in the next quarter.
The job cuts, which represent about 2 percent of AMD's total workforce of 13,800, are the first job cuts at AMD (AMD) in about three years, a spokesman said.
More details on the charges will be given when AMD reports first quarter earnings after the market closes on 6 April, AMD said.
The news was just the latest in a series of manufacturing problems that have hurt AMD, which has for years competed with Intel.
The announcement offsets the good will AMD earned recently when it began to gain some market share in the retail-consumer sector, where its low-cost processors are used in sub-$1,000 PCs.
"Normally they shoot themselves in the foot. Maybe this time they shot themselves in the head," said Ashok Kumar, a Piper Jaffray analyst.
The job cuts are part of an overall restructuring to focus on areas where the Sunnyvale, California company can lead and grow profitably, said spokesman Scott Allen.
"Some projects and product areas are going to be curtailed or eliminated, but we are not prepared to talk about that yet," Allen said.
Kumar speculated that AMD could cut jobs in its Vandis unit, which has been underperforming. Last month, Richard Forte, the CEO of Vantis, which makes programmable logic chips, resigned abruptly.
Kumar also said that the company could cut back on its embedded processor development projects or staff in its volatile flash memory business.
Last month, AMD said it could incur an operating loss in the first quarter based on a reassessment of competitive market conditions, including increased price-cutting from Intel, the world's largest chip maker.
On Monday, AMD's co-chief operating officer, Atiz Raza, told a Morgan Stanley Dean Witter semiconductor conference that the company would fall short of its previous goal of shipping 5.5 million units of the K6 family in the first quarter.
Raza said that AMD planned to ship no more than five million units in the quarter, due to lower manufacturing yields in the first eight weeks of the quarter. Yields refers to the number of working parts that are not thrown away in the manufacturing process.
The manufacturing problems occurred with the middle range of the K6 family of microprocessors. AMD said it was getting enough 300 and 400 MHz parts, but was having difficulties making 350 MHz chips.
AMD said the manufacturing problem is now solved and it also achieved high manufacturing yields of its K6 processors running at 400 and 450 MHz.
"Demand for our desktop and mobile products remains strong," Raza said in a statement. "We plan to ship a minimum of five million units in the second quarter and believe we will meet our goal of shipping 20 to 25 million microprocessors this year."
AMD also said that it has begun production of its next generation microprocessor, the K7, which is scheduled for introduction in June.
"The true savior for AMD will be the K7," said Kumar. "The question is when and if they will execute on that."
Shares of AMD dropped $1.69, or 9 percent, to $17.25.
