The Economic Crisis Effect: AMD To Terminate 100 More Than Planned

A news article by Scott M. Fulton on December 30, 2008:

In an SEC filing yesterday, the CPU maker disclosed that it will incur a slightly larger restructuring charge than earlier estimates, due to its need to trim about 600 employees from its roster starting this quarter, rather than 500.

At some point, there should be a turnaround for struggling AMD, but it's not here yet. Last month, the company announced it would have to trim 500 positions worldwide from its corporate payroll, in a restructuring effort connected to its workforce reduction plan of 1,600 announced last April.

Yesterday, the company informed the US Securities and Exchange Commission that the 500 number being eliminated starting with this fiscal quarter would actually be higher by 100.

"The Plan primarily involves approximately 600 employees who were notified during the fourth quarter of fiscal 2008 that their employment with the Company would be terminated, and additional cost reduction actions that either have taken place during the fourth quarter of fiscal 2008 or will take place in fiscal 2009," yesterday's SEC filing reads. "As a result of its current analysis, the Company now estimates that the restructuring expense that it will record in the fourth quarter of fiscal 2008 will be approximately $70 million."

In an almost morose way, an employee reduction plan by any company can be perceived by shareholders as a long-term investment in the company's future. In the short term, workforce reduction is a very significant burden -- the gains that come from not paying folks' salaries and benefits are not appreciated immediately, since it costs so much to support those who are being let go. Last month, AMD estimated the cost of terminating 500 employees, starting with its fiscal fourth quarter 2008 and moving into 2009, would be $50 million. Now, we know it will cost AMD 40% more to terminate 20% more positions, with $45 million of those expenses to be charged next year.

In the same filing, the company also warned that it expects to incur yet another material charge as a result of the deteriorated goodwill suffered between the time the acquisition of graphics chip maker ATI was announced in October 2006, and the time it was enacted. Goodwill is the estimated value of an acquisition over and above its material assets, which is essentially how much faith the acquirer has in the acquired company's good standing in the market. Last year at this time, when the deluge of bad news began gushing from AMD, its president and now CEO, Dirk Meyer, revealed his company would have to assume a one-time write-down charge, equal to how much less extra value ATI actually brought to AMD. In July, that charge amounted to an astonishing $880 million, from a merger that was originally valuated at $3.2 billion.

And now we learn that even this much wasn't enough. AMD went so far as to hint that it may yet uncover some previously undisclosed liabilities, perhaps related to intellectual property -- "intangible assets" -- that should have been uncovered long ago.

"The Company [AMD] expects that the impairment charge will be material, but, as of the time of this filing, the Company is unable to estimate the amount or range of amounts of the impairment charge," reads the SEC filing yesterday. "In addition, the Company will also perform an analysis to identify whether there is also potential impairment of any of the remaining identifiable intangible assets acquired in the ATI Acquisition."