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It wasn't a happy December for 600 AMD (NYSE: AMD  ) employees. Instead of a Christmas bonus, they got a pink slip and a severance package. That's 100 more than the 500 cuts the company originally expected to make.

Don't cry for the unemployed, though: AMD expects to record $34 million in cash costs related to severance payments and continued benefits this quarter. That works out to some $57,000 per lopped-off head and a pretty soft landing in hard times. And 600 out of 16,420 staffers (as of December 2007) works out to about a 3.7% workforce reduction. That's fairly drastic, but still far short of the rumored 10% cutback brewing at Microsoft (Nasdaq: MSFT  ) or a similar-sized plan under way at Electronic Arts (Nasdaq: ERTS  ) .

AMD's stepped-up layoffs may be bad news for employees, but they’re a good sign for investors. This shows that management has the intestinal fortitude to make tough moves when needed, as well as the opportunistic eye to ferret out cost savings in new places.

The company probably will fall far short of its projected guidance for the current quarter, especially since the layoffs and some new goodwill and investment writedowns laid a few extra stones on that burden. But the Shanghai chips are shipping in volume through big-name server vendors like Sun Microsystems (Nasdaq: JAVA  ) and IBM (Nasdaq: IBM  ) . AMD's ATI graphics cards are currently beating arch-rival NVIDIA (Nasdaq: NVDA  ) in a number of performance measures, and next year, we'll see the first true fruits of the ATI acquisition with new lines of highly integrated system platforms.

All of this adds up to a strong position in each of AMD's core markets. It won't kill NVIDIA or Intel (Nasdaq: INTC  ) by a long shot, but all AMD really needs to do is to perform once again the way it did three or four years ago. The stock price spent a lot of time in the $20 range before Intel put price-war moves on its smaller rival; after that, it even briefly touched $40 per share. Today, AMD looks poised to return to profits, and to world-beating stock market performance to boot.

Worst-case scenario? Nope, I don't see a bankruptcy or liquidation, even if the long line of creditors come looking for early payoffs. Much more likely is an acquisition at a hefty premium to today's prices, probably at the hands of Big Blue or perhaps Sun. Win or lose, I believe AMD will still beat the market next year.

Further Foolishness:

Microsoft and Intel are Motley Fool Inside Value selections. NVIDIA and Electronic Arts are Motley Fool Stock Advisor recommendations. The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (13) | Recommend This Article (57)

Comments from our Foolish Readers

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  • Report this Comment On December 31, 2008, at 5:27 PM, actue wrote:

    Anders, you never give up on AMD, do you. AMD only exists today because Intel knows they have to keep them around. That is the only reason the bankruptcy won't happen.

    I don't really know for certain but I have always heard and read that selling the company invalidates their license to make/sell Intel compatible processors. Without that I don't think they would be worth much if anything.

  • Report this Comment On December 31, 2008, at 5:38 PM, Tekate wrote:

    You are pathetic, these guys/gals who got the boot should feel GOOD? are you nuts. They feel horrible I'm sure. I have never read a more selfsurving callous selfish piece of crap out of the MF. Let's applaud the AMD employees and hope AMD can turn around and rehire some of these guys/gals who have given hours to this company. I hope you feel the same when the MF downsizes and let's you go.. oh well, feel good you got a few thousand..don't feel bad... think before you pump.

  • Report this Comment On January 01, 2009, at 12:37 AM, SuperLazySamurai wrote:

    This is the first time I am reading this site and this is the WORST financial site I have ever came across.

  • Report this Comment On January 01, 2009, at 4:24 AM, TEBuddy wrote:

    Look at the grumpy Intel shareholders that have no idea what theyre talking about. Got to be happy Intel is not copying AMD cpus, thats a 180 degree reversal.

    Try getting laid off wihthout $50K on the way out, I bet youd feel about 50K times worse than the AMD employees, which in retrospect maybe these people feel good.

  • Report this Comment On January 01, 2009, at 10:13 PM, keithldick wrote:

    This is a bunch of Bull.

    Instead of Layoffs there should be Pay cuts starting at the Top with the largest percentage taken from them and the least taken from the workers.

    If these guys knew how to run companies this would have never happened or at least they would have planned for such things and had other options to keep everyone working. Look around you, it's happening everywhere and I'm willing to bet none of the BigWigs are taking pay cuts, they'd rather layoff workers and make the remaining ones work twice as hard to make up the difference while they sit back and enjoy all the Good Things these working helped bring them.

  • Report this Comment On January 01, 2009, at 11:06 PM, necoates wrote:

    Well don't know bout AMD but I have a very sneaky suspicion that orders are way down for processors through Q2 in 2009, so what little market share AMD still has to profit on is shrinking through the first part of 2009 no matter what.

    I wouldn't touch this market this year with a ten foot pole, if you want prediction's I'd bet a gold Krugerrand the Dow crashes sometime in march as retail bankruptcies weigh down the market seriously

  • Report this Comment On January 02, 2009, at 1:28 AM, EvilCamaroSS wrote:

    AMD is on the way up, This stick is EXTREMLY undervalued at $2.20 as the world's number 2 chipmaker. Look at the facts here, AMD won't go bankrupt because intel needs them and so do the computer manufacturers. ATi is beating the snot out of nvidia in performance. AMD Phenom II is just as good if not better than the i7 and not to mention cheaper. AMD has taken the nessiscary steps to cut costs, and spin off the not so profitable parts of their company. Not to mention they are being backed by abu dahbi who as we all know build islands for fun. All in all some of the stuff said in the article is a bit biased and i dont expect AMD to go 10 fold. I'd put Q2 2009 pricing right around $5-$6 a share.

  • Report this Comment On January 02, 2009, at 5:53 AM, TMFZahrim wrote:

    Hey y'all,

    Some people think I'm biased because I own AMD stock. Conversely, some think I shouldn't write about Cisco because I don't own that one. Very well. The disclosure is there either way, and you get to make up your own mind.

    For the "OMG fanboi!" crowd: I also like Intel, just not as much as AMD.

    And I'm happy to call out AMD's boneheaded moves, too.

    FWIW, rock on in 2009.


  • Report this Comment On January 02, 2009, at 2:44 PM, johnfstephjr wrote:

    Why is every one shooting Anders for giving his opinion? I believe in AMD too. At these prices and with the investment from the oil guys, it is a bargain. They will not go out of business or declare bankruptcy.

    And YES I own a ton (650k) of AMD stock!!! I am increasing my position to 1.25M shares. Why? BECAUSE I CAN!

  • Report this Comment On January 02, 2009, at 5:54 PM, skeptic86 wrote:

    my opinion

    cloud computering is the future. from the looks of things right now, amd has the advantage technologically, with its shanghai chips. its integrated graphics solutions look better than the competition's too. but technology isnt an "economic moat." i dont know/think they have any economic moats.

    amd is a gamble. i like gambling a little.

  • Report this Comment On January 03, 2009, at 3:45 AM, greenwave3 wrote:

    AMD hasn't been profitable in how long? What makes you think a few layoffs during tough times will help their bottom line? Until AMD comes up with an improvement on chipsets that Intel produces, it is destined for failure.

  • Report this Comment On January 03, 2009, at 4:47 AM, EdLeake wrote:

    Because the acquisition of ATI hampered their figures for a good 18-24 months.

    The ATI (graphics wing) is now paying for itself and AMD is about to release a desktop and server product that competes with Intel on performance but as a platform is cheaper overall.

    AMD have recently streamlined their business and have taken on a massive cash investment from the middle east.

    Yes the next 6-12 months will be tough for all Tech retail but even so I can't see this stock going any lower; AMD don't just make processors!

  • Report this Comment On January 07, 2009, at 1:49 PM, snowfreeze wrote:

    Wow, we have some real morons in here.

    I don't need/want to sell anything to morons, so I'll just keep my AMD shares and shut up.

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