The Sunnyvale, Calif.-based chipmaker also will close two fabrication facilities in Austin, Texas--Fab 14 and Fab 15--and streamline other operations to reduce costs. About 1,000 of the layoffs will come from the closing of the Austin plants. The rest will come from AMD's operations in Penang, Malaysia.
The news comes the same day that PC maker Gateway, one of AMD's largest customers, said it will stop using AMD chips in its PCs. The plants that are being closed, however, do not manufacture PC processors.
Until now, AMD had avoided layoffs, despite a slowdown in the semiconductor industry. The plants had been scheduled to close at a later date, but AMD said it decided to push up the timing to help reduce costs.
"It seems to kind of make sense. They are really trying to move quick here" to close the plants, said Dan Scovel, a Needham analyst. He noted that the operations slated for closure didn't produce products for AMD's chief markets: processors and flash memory.
Only 8.2 percent of AMD's revenue last quarter derived from markets outside processors and flash memory. And only 3 percent of the company's revenue was derived from foundry operations.
Fab 14 and Fab 15 are two of AMD's oldest plants and are used primarily as part of AMD's foundry operations, which make chips for other companies on a contract basis.
As a result of the closings, AMD will take a charge of $80 million to $110 million in the current quarter. However, the chipmaker said it expects to save $125 million annually.
Although closing the plants will help cut operational costs, AMD must still contend with a larger problem, namely the price war with Intel. Although AMD is selling more Athlon and Duron processors than it did a year ago, the decline in prices has made it difficult for the company to turn a profit on them. Intel has also dented AMD's momentum by continually ratcheting up the gigahertz on its chips.
"The good news is that from a market-share perspective they are actually doing OK," Scovel said of AMD. "The bad news is that with the price war Intel is effectively denying them profitability."
It's not surprising to see AMD shutter Fab 14 and Fab 15, another analyst said, because market downturns usually hasten the closing of older fabs.
"There's a point when it's easier to build a new (fab) than keep the older ones open," said Risto Puhakka, a vice president at VLSI Research.
In AMD's case, he said, it apparently makes more sense to cut the costs of maintaining the two older fabs and focus on adding new technology, such as 12-inch wafer production to its newest plant, Fab 30 in Dresden, Germany.
AMD is not alone in its thinking. By VLSI's count at least five major chipmakers have announced plans to close or delay building fabs this year. They include Motorola, Texas Instruments, Hyundai and NEC, which have each delayed and/or shut down fabs for products ranging from radio frequency devices to dynamic RAM.
News.com's Michael Kanellos contributed to this report.