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Can AMD sack its way to success?

Word has been leaking out over the past 3 weeks of another wave of culling over at AMD. Having started with the more obvious dead weight back in 2006, each round of ‘voluntary’ redundancies etc has resulted in people who are more and more popular being let go. Can AMD succeed in sacking its way to success?  With the sounds of UB40 in the background, KitGuru investigates.

The world divides, loosely, into workers and entrepreneurs. People who want to create a dream of their own and those that are happy to service other people’s dreams for a salary. In KitGuru’s experience, only a small minority of workers in the West ever really think about how they get paid. The further East you go – the better the understanding. So what does it mean to pay a salary at a company like AMD?  What needs to have happened to pay someone £30,000?

Many at AMD will be checking their rainy day funds as it continues to pour

While AMD and nVidia focus a huge amount of effort on creating graphic cards that sell for £400 or more, the real market is definitely for cards that are bought for less than £150. Take off tax, the margin charged by the shop and another margin for the distributor – and you really don’t have that much money left for the poor multi-billion turnover graphics chip manufacturer [Intended irony? – Ed].

Remember, you also need to take away the cost of shipping from the Far East, the packaging, bundled software, memory and the PCB itself.

Now you’re down at the brass tacks level of which part of a graphic card that AMD and nVidia actually sells. The GPU. Which needs to be made by TSMC and that has to be paid for.

For the sake of argument, we’re going to say that AMD sells an average graphics core for £60 and it makes 40% on that sale. If those numbers were correct, then each sale of an average graphics card chip would produce £24 for AMD as a company.

Let’s go back to that salary of £30,000 ($45,000). For sure, many people at AMD will get paid a lot more (you know who you are!), but let’s just focus on a ‘regular person’ making a little over the national average salary. That salary of £30,000 will become more like a company cost of £35,000 after you add in National Insurance payments, benefits etc. We’ll work the numbers roughly, knowing that there will be big inaccuracies in each guess.

Each employee at £30,000 means AMD needs to sell around 1,500 more graphics chips.

This rough-n-ready KitGuru maths allows us to set up another factoid.

If you managed to lose 1,000 of these people from your organisation, your could now drop your annual unit-sales target 1.5 million chips and you will still make the same kind of money.

Stunning.

AMD CEO Dirk Meyer "My salary is only this big, really"

There are going to be times when getting rid of someone turns out, later, to be an obvious mistake, but overall the less people in this equation the better for AMD’s shareholders and ambitious VPs.

With sales for Q2 up around 43% year-on-year from the same period in 2009 and an on-going cull of personnel within the organisation, AMD seems set for profitability over the next 12 months, even if nothing changes in the market. However, the advent of AMD Fusion will, as we have already highlighted several times, increase AMD’s size and revenue in 2010/11.

Downsides? Moral/Morale. The only trade-offs you need to consider are ‘How much profit is enough ?’ and ‘What kind of feeling does it generate internally if your friends keep getting culled ?’.

The question of how much profit is enough is, plainly, daft for at least 2 reasons. AMD has hardly ever made a profit and Wall Street is only really interested in massive, on-going growth and profitability.

The morale issue will almost certainly be dealt with without the board needing to do anything. If the company’s products and finances continue to improve, then the people who remain in the company will slowly begin to believe that they are superior and those who left were only holding them back. It’s basic human psychology. Darwinian really. Those who still have an AMD parking space are, naturally, the survivors – so fitter by definition.

Photo taken inside AMD board level presentation to merchant banker

KitGuru says: Those left within AMD must know that the culling has slowed. There will be a staffing level under which AMD cannot operate. Once you have got rid of the soldiers, it’s time to turn your attention to the officers.If KitGuru was working at AMD with a salary of more than $100,000 a year, we’d be worried. Time to start banging in the result folks or your next experience of multiprocessor technology might be the database engines at jobsearch.com

Let us know if you think AMD can sack its way to success over in the KitGuru forums

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