AMD Improves, Not Out-of-Woods, Yet

Recently, I reported on the boom 2006 represented for semiconductor manufacturer AMD. The chipmaker, responsible for the mega popular Athlon line, reportedly increased its revenue by a staggering 86.1% from 2005.

However, the numbers don't tell the whole story. AMD is still struggling to establish a stable existence in the chip market, strongly evidenced by its announcement that it will fail to meet sales expectations for this quarter. (Source: theinquirer.net)

Early predictions for AMD's first quarter placed revenue at an impressive $1.55 billion. This lofty goal may have been set when it became obvious the company would post excessive increases for 2006 as a whole, although this was premature. Instead, AMD believes it will post first quarter revenues of approximately $1.2 billion, $200 million less than expected.

So, what's with the slip?

AMD's answer is understandable. With chip profits spiraling in the wrong direction at this time last year, the company was unprepared for the late 2006 eruption. That means it simply didn't have the tools in place to accommodate the increase in demand, leading to a slowdown in production. (Source: arstechnica.com)

In order to get back on track, AMD has announced plans to cut costs in an attempt to reduce capital spending by $500 million. Although that doesn't yet mean layoffs, it has meant the freeze of hiring at AMD, for all positions not deemed "critical".

Many insiders are speculating that AMD sacrificed its financial security for market share, which it dramatically increased with the mass reduction of chip prices. Whether it's two steps forward and one, two, or three steps back is still up for debate.