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AMD to cut CPU production

Published on 26th January 2009 by Gareth Halfacree

AMD is to cut production of its CPU lines to below demand - in order to avoid building up excess inventory it can't sell.

If you're hoping that your next upgrade is going to involve an AMD processor, you might have a fight on your hands – the company is going to aggressively reduce the number of chips in the channel.

According to an article over on ExtremeTech, the company is responding to slowing customer demand by massively reducing production for a while – and then resuming production below demand, to ensure that it avoids the trap of excess inventory in these troubled financial times.

AMD's president and chief executive officer Dirk Meyer has said that the move is in response to a “severe industry correction in the IT supply chain, especially in notebooks,” although it is thought that the move is likely to affect supplies of both desktop and laptop oriented processors. Describing the company's aim to as being to have its “inventories drain in Q1 [2009],” Meyer said that company would be “manufacturing below our shipment level” until further notice.

With AMD choosing to produce below market demand – and in doing so avoid the expense of unsold inventory which has to be downvalued and often sold at a loss when demand is misjudged – the company risks alienating customers who, unable to buy AMD processors in the volumes they require, may move to rival Intel, a company which has made no moves to reduce manufacturing rates. With both chip manufacturers entering a price war in the quad-core market, it's going to be interesting to see which tactic wins out.

Do you believe that AMD's move to reduce manufacturing below demand is a sign of desperation, or is it the company's best chance to survive the current economic climate and live to fight Intel another day? Let us know your thoughts in the forums.

12 Comments

Discuss in the forums Reply

Xen0phobiak 26th January 2009, 09:22

Well, thats one way to put the prices up, and/or switch everyone over to Intel.

Xtrafresh 26th January 2009, 09:27

smart move. This way they maximise their profits from the quads that they do sell. Intel can have the extra marketshare, because upgrading from a q9450 involves a new motherboard (new socket) anyway, so AMD can win them back next round easily. Meanwhile, they let Intel take the hit on decreased value on their excess stock, hoping that in the NEXT pricewar Intel will not have such a huge budget available.

This is really agressive marketing, and i like how AMD is putting up a fight.

n3mo 26th January 2009, 10:03

Crap. And that is why i had to order my Phenoms II all the way from USA. But with AMD it was always like this - my FX-62s (i needed six of them) had to be ordered from somewhere in Spain. Well, i still put my money on AMD and I hope that they know what they are doing.

Javerh 26th January 2009, 10:22

Intel and AMD are not only fighting about customers. This move is targeted to please the investors. They're trying to increase their return-on-investment - percentage. The current economic situation will hack at their shares and maybe cause the rats to leave the ship. With a better ROI-%, this can perhaps be avoided. If they get lucky, they might even win some investors from Intel.

Hustler 26th January 2009, 11:14

severe industry correction in the IT supply chain, especially in notebooks,

AMD's share of the notebook market is tiny, so dont know why they are using that as an excuse.

Paradigm Shifter 26th January 2009, 13:47

Makes sense, really... it's never good to be sitting on 'inventory mountain' where the only thing that can happen to the value of that inventory is that it goes down.

Still, production below demand is a very fine line to walk. They get their estimates wrong, and they're in trouble.

Bladestorm 26th January 2009, 16:28

I'm sure they aren't in a position to waste money right now, so I can certainly understand it.

HourBeforeDawn 26th January 2009, 16:46

well if the market is slow anyways and whats on the shelves isnt selling, shorting up the amount of product wont really make that much a difference to the buying end, remember prices only go up if there is a demand to go along with the low stock and in this case there isnt so it shouldnt changes things by much anyways aside from helping AMD a bit.

ssj12 27th January 2009, 05:44

Quote:

Originally Posted by Xtrafresh
smart move. This way they maximise their profits from the quads that they do sell. Intel can have the extra marketshare, because upgrading from a q9450 involves a new motherboard (new socket) anyway, so AMD can win them back next round easily. Meanwhile, they let Intel take the hit on decreased value on their excess stock, hoping that in the NEXT pricewar Intel will not have such a huge budget available.

This is really agressive marketing, and i like how AMD is putting up a fight.

I think AMD is screwed against Intel honestly. We have yet to see pricing for dual-core Nahalem processors and the 32nm processors will be cheaper to produce so I expect the high-end 32nm will be around $850 versus the current $1019 Core i7 965. (NewEgg pricing)

Aragon Speed 27th January 2009, 10:40

Quote:

Originally Posted by ssj12
I think AMD is screwed against Intel honestly. We have yet to see pricing for dual-core Nahalem processors and the 32nm processors will be cheaper to produce so I expect the high-end 32nm will be around $850 versus the current $1019 Core i7 965. (NewEgg pricing)

Slightly OT, but I think AMD really need to go back to the drawing board with their processor design and manufacturing.

They have only recently released their 45nm chips, ages after Intel has had them on the market. In fact so long after that intel are already talking about the next generation 35nm chips.

Come on AMD, it's time you woke up and did some work. :p

Journeyer 27th January 2009, 12:57

Aw crap, oh well - I wasn't planning on joining the PhII crowd until AM3 anyway so...

Saivert 29th January 2009, 07:27

Guess someone just buys AMD CPUs in order to support them and avoid a monopoly. too bad it's a fight against many as most people think with their wallets, not their ideals. And Intel is currently most bang for the buck and has been for a LONG time.

AMD should get this Dragon* platform going soon. If they could make a complete system builders package for a nice price they could win over many customers.

*) AMD CPU + AMD chipset motherboard + ATI graphics