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(Reuters) – Advanced Micro Devices (AMD) has announced a workforce reduction of 4%, amounting to around 1,000 job cuts, as part of a strategic pivot towards the development of artificial intelligence (AI) chips to better compete with industry leader Nvidia.
As a significant player in the tech sector, AMD is recognized as Nvidia’s primary competitor in the profitable market for chips that serve as the core processing engines for data centers. These advanced systems are essential for managing the extensive data requirements of generative AI applications, such as OpenAI’s ChatGPT.
“To align our workforce with our most promising growth opportunities, we are initiating several targeted actions,” an AMD representative conveyed in a statement to Reuters recently.
In the third quarter, AMD reported a remarkable increase in revenue from its data center segment, which includes its AI graphics processors, more than doubling compared to the previous year. Contrastingly, the personal computer division saw a 29% rise, while the gaming segment suffered a significant decline of approximately 69% within the same timeframe.
Looking ahead, analysts predict a substantial growth trajectory for the data center unit, estimating a 98% increase in 2024. This is notably higher than the anticipated overall revenue growth of 13%, according to average projections gathered by LSEG.
AMD is making considerable investments in the development of AI chips, which are characterized by high demand and premium pricing, particularly from major players in the tech industry, often referred to as hyperscalers, such as Microsoft.
The company is set to initiate mass production of a new AI chip model, the MI325X, in the fourth quarter of this year. However, scaling up production for these advanced chips presents challenges due to limited manufacturing capacity and substantial costs involved.
The financial burden is evident, as AMD experienced nearly a 9% increase in research and development expenditures during the third quarter, with total cost of sales rising by 11% as well.
Year to date, AMD’s stock has decreased by over 3%, reflecting the company’s difficulties in meeting investor expectations following a robust surge in valuation last year, which was largely fueled by optimism regarding AI technology’s potential returns.
(Reporting by Arsheeya Bajwa in Bengaluru and Max Cherney in San Francisco; Editing by Maju Samuel)
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