The layoffs will affect employees at the semiconductor maker's plant in Austin, Texas, and its headquarters in Sunnyvale, California. The company has 12,400 workers worldwide.
AMD said the action was prompted by its need to reduce costs and realign skills to match future projects.
Last October, AMD reported a $38.4 million loss in its third quarter as expenses rose from its computation products group. The company had reported a profits of $42 million a year ago. Meanwhile, its sales fell 24.7 percent to $457 million for the quarter over last year.
AMD said sales declines in its programmable logic devices and the communications and components group drew down profits. But last month, the company began limited shipments of its next-generation K6 microprocessor. The chip is AMD's first with multimedia capabilities, or MMX. The company is hoping to use the chip to compete with Intel's Pentium Pro chip. (Intel is an investor in CNET: The Computer Network).
Analysts, however, question whether the K6 can attract such first-tier PC makers like Compaq. The computer maker had been planning to use AMD's K5 chip, but processor problems and long delays to market resulted in Compaq canceling those earlier plans.