This is what AMD's new CEO sent to all of his employees, and as you can see in this rather long read, things are not so bright for this chip company.


From: Meyer, Dirk

Sent: Thursday, January 15, 2009 4:02 PM

To: ALL AMD EMPLOYEES

Subject: A New Reality

TO:     AMD Employees
FROM: Dirk Meyer, AMD President and CEO

 

RE:     A New Reality

The last few months have been humbling for virtually every company in every industry around the world. Global demand is down dramatically. And uncertainty about both the timing and intensity of a potential recovery has risen. This combination has made our goal of regaining profitability and free cash flow more difficult – and more important - than ever.

 

At a time like this, I think it’s important to remind ourselves and our teams of two ‘undeniable truths’ that should keep us motivated about the future. The first is that we play a critical role in an essential industry. Our customers both want and need us to thrive … and we have the assets, both in the form of IP and people, to succeed. Second, great companies see major disruptions such as this one as opportunities. Economies always rebound, demand picks up, and future success goes to those who make the right choices to position themselves for the inevitable turnaround. We have lived through adverse times before, and we will do so again.

 

Meanwhile, we are weathering a monster of an economic storm, one that requires additional swift action and some very difficult decisions. First, we are going to have to further reduce our headcounts and our budgets immediately, to help meet a new, lower breakeven target. More specifically, our current plan is to reduce our headcount by approximately nine percent of AMD’s ‘product company’ headcount in the first quarter through a combination of attrition, previously communicated divestitures, and a reduction in workforce. These reductions will be primarily focused on manufacturing and sales, marketing, and general and administrative functions, while limiting R&D reductions wherever possible.

 

But, while taking these difficult actions, we also must protect our core capabilities – beginning with our ability to execute our roadmaps. We have been watching very carefully what great companies around the world are doing to cope with this crisis, and thinking deeply about what our shareholders and employees would want and expect us to do. More and more leadership teams are taking a temporary, significant reduction in base salary, with Lenovo and Freescale as recent examples. It is time for us to take similar action. Beginning in February, I will be taking a temporary reduction of 20 percent in base salary. In the U.S. and Canada, we will implement similar salary reductions of 15 percent for VPs, 10 percent for all other non-overtime eligible employees, and 5 percent for all overtime-eligible employees. Outside North America, I am asking all AMDers to take comparable pay cuts – the details of which will be determined with local management next week.

 

I know this will be a personal sacrifice for all of you, but at the same time I know you want to limit headcount reductions as best we can in order to preserve investments that will drive our future success. I also want to emphasize that these actions are temporary, and we will revisit them every quarter and will begin reversing them when business conditions and financial performance return to acceptable levels.

 

In addition, the following changes in our benefits plans are scheduled to take effect immediately:

 

·         suspend the 401k (U.S.) company match, and

 

·         delay the implementation of the RRSP (Canada) company match program

 

In the meantime, we need you and your teams to continue treating every discretionary spend decision as though it were your own, including continuing the hiring freeze, scrutinizing all overtime and contract labor activity and eliminating all travel not related to serving key customers and growing revenues.

 

All of these actions are disheartening, but necessary in these extraordinary times. It is hard to know the size and timing of the recovery. But we do expect our cost structure to be better matched to business conditions in the second half of this year.  Indeed, our goal is to avoid a cash drain in the first half of this year and begin making profits and generating cash in the second half. I know you will have questions, and I encourage you to speak with your manager and your HR business partners, and read the Q& document for more details.  

 

We have recently turned the corner on a number of bold moves – the kind of behavior expected of winners. Our graphics team has successfully retaken the performance title, and innovations like Shanghai, along with our Yukon and Dragon platforms, are gaining industry and customer traction. Meanwhile, we are rapidly approaching a major milestone in our industry-changing “Asset Smart” strategy.

 

AMD is a company with a rich history of success, and a great will to succeed. We have lived through tough times before – and we will do so again today. It all comes down to how much we believe in our future success. I believe it, your executive team believes it … and I need you to show that you believe it. I am calling on each of you to understand and support these actions – and to do what it takes to secure AMD’s long-term success.  

 

The future is what we resolve it to be - and what we work together to deliver. 

 

 

 

---//---

 

 

 

 

 

1. BACKGROUND

 

Q1. Why are we making these changes?

 

The global economic climate and our current business conditions require AMD to readjust our breakeven point and topline targets. In order to regain financial health, we must make some difficult decisions at this point which include budget and headcount reductions. These decisions have been made with much care to preserve cash and protect our core assets as a company, so that we are poised to weather this financial storm and prepare for the future economic turnaround. 

 

Q2. When will these changes be effective?

 

The effective dates will vary depending on the program. See further below for specific information about each program.

 

Q3. How does this compare to what other companies are doing?

 

Several of our competitors and partners in the technology industry, as well as global companies in general, are in the unfortunate situation of having to institute salary reductions or freezes, implement time without pay, and reduce or eliminate merit programs and other benefits.

 

Q4. How did you decide on the specific changes?

 

The management team spent and is spending considerable time reviewing AMD’s options for meeting our new targets. In order to position us well for the future, changes were made based on preserving cash, and ensuring that we have the proper resources to execute against our roadmap and honor our customer commitments. While these decisions are difficult, they are being made with an eye toward the future, and retaining as many people, benefits and commitments as possible during these difficult economic times. 

 

 

Q5. Are these changes global? Why/why not?

 

AMD is a global company, and our current economic situation is a global challenge. It is our intention to ensure a globally consistent program, with all of our employees working towards our new target levels. While we must ensure that we work within local and legal limitations, we are asking all AMDers to share in the restructuring and rebuilding of AMD’s financial health. More details will come from regional leaders, but we need to act as a whole to gain the full impact of our changes.

 

Q6. What other measures are we taking from a business perspective to address our financial position?

 

We are scrutinizing all project and program costs. Hiring has been frozen with the exception of critical hires. Travel has been reduced and is approved only for customer visits. Video conferences are strongly encouraged. Contracts are being renegotiated where possible. Catering, as well as other forms of facilities and general purchasing, have been significantly reduced. AMD will continue to identify opportunities to increase our level of efficiency and eliminate non-critical work.

 

Q7. Why didn’t our business leaders foresee the need for these changes in December when we rolled out other compensation and benefits changes?

 

Unfortunately, the current economic environment is unpredictable as a whole and has dramatically declined further since those decisions were made. As a result, further adjustments had to be made in order for us to regain financial health in these difficult times.

 

 

 

2. REDUCTIONS IN FORCE

 

Q8. How many employees will be affected by these reductions and at what level?

 

Our current plan is to reduce our headcount by approximately nine percent of AMD ‘product company’ headcount in the first quarter through attrition, previously communicated divestitures and a reduction in force. These reductions will be primarily focused on manufacturing and sales, marketing, and general and administrative functions, while limiting our R&D reductions wherever possible. The reductions span a variety of levels in the management and individual contributor populations.

 

Q9. Why does AMD need to reduce headcount?

 

The global economic situation as well as our own business conditions have required us to lower our financial targets. In order to return AMD to financial health and consistent profitability during this challenging time, we must reduce our headcount in line with our target expectations.

 

Q10. Will there be additional cost reduction actions?

 

Given our current economic realities, it is imperative that we continue to assess AMD’s programs, activities and staffing requirements, in order to ensure that we adjust as needed based on our global market. Returning AMD to financial health will require us all to scrutinize our spending consistently and across multiple areas.

 

Q11. How will affected employees be chosen?

 

Reductions will be determined through a review of employee performance, skill requirements and functional needs.

 

Q12. What types of severance packages are being offered? How do they compare to others?

 

AMD is offering eligible employees severance packages in line with industry and regional practices, and making every reasonable effort to reduce the hardships on impacted employees.

 

Q13. What kinds of outplacement services are being offered?

 

AMD has contracted with outplacement agencies to assist affected workers in most locations. The services provided are competitive in respective local markets and include career coaching and job search assistance.

 

 

 

3. SALARY REDUCTIONS

 

Q14. Why are we reducing base salaries?

 

AMD is reducing base salaries in line with our new financial targets. While this is a difficult decision, reducing salaries will allow us to limit headcount reductions as best as we can in order to preserve investments that will drive our future success. 

 

Q15. Why do the salary reductions seem to be targeted at North American employees?

 

While North American reductions in salary are mandatory, our leadership team is asking all AMDers on a global basis to take comparable pay cuts. Details will be determined with local management teams. All AMDers have an important role in driving AMD towards consistent profitability and full financial health. 

 

Q16. Do these salary reductions affect The Foundry Company employees?

 

As employees of AMD, The Foundry Company will participate in these reductions between now and the close of the Asset Smart transaction. The Foundry Company will evaluate these actions at close and adopt a strategy to launch and build the company responsibly while balancing the harsh economic realities of 2009 and the need to reduce expenses.

 

Q17. When will the base salary reduction be effective?

 

Base salary reductions will be effective as follows:

 

U.S.:

 

• January 26 (overtime eigible)

 

• February 2 (non-overtime eigible)

 

Canada:

 

• February 2 (overtime and non-overtime eigible)

 

New salaries will appear in the February 12 paycheck for U.S. and in the  February 13 paycheck for Canada.

 

Q18. How much will base salaries be reduced in North America?

 

Base salaries will be reduced as follows:

 

• CEO :  20 percent

 

• VP: 15 percent

 

• Non-overtime eligible population:  10 percent

 

• Overtime eligible population: 5 percent (excludes co-ops/PEY/interns)

 

Sales employees are included in this reduction in salary.

 

Q19. Will expatriates whose home location is in North America be affected by this salary reduction?

 

Yes, expatriates from North America will be affected.

 

Q20. Do the base salary reductions affect co-ops and interns?

 

No, the salary reductions do not affect co-ops or iterns.

 

Q21. How do North American employees hired in 2009 volunteer for the base salary reduction?

 

HR will be contacting newly hired employees regarding the voluntary based salary reduction process.

 

Q22. How long will the base salary reduction be in effect?

 

These actions are temporary, and AMD will revisit them every quarter and will begin reversing them when business conditions and financial performance return to acceptable levels. We do expect our cost structure to be better matched to business conditions in the second half of this year.

 

Q23. How do I change my 401(k) contribution and withholding election?

 

(U.S. only) You can make changes to 401(k) contribution rates online at MyHR > My Personal Data > Benefits Overview > 401(k). 

 

(U.S. and Canada) For withholding elections, please use MyHR to update MyHR > My Personal Data > My Information.

 

You will have until January 23 to have these changes affect the February 12 (U.S.) and  February13 (Canada) paychecks.

 

Q24. Will the reduction of my base salary have any impact on my other benefits?

 

Employee benefits that are based on salary will reflect the reductions. Basic and supplemental life insurance, which are calculated on multiples of annual salary, will reflect the adjusted salary levels. Disability benefit payroll deductions will also be calculated on the adjusted salary; any claims for disabilities that begin after February 1 will be based on the adjusted salary.

 

Q25. Do these salary reductions have any impact on the severance amounts referenced in termination agreements that have already been issued and signed by Handheld employees who will be leaving as a result of the reduction in force on a date after the February 1, 2009 salary reduction effective date?

 

No, severance agreement amounts that have already been issued and signed will be honored.

 

Contractors

 

Q26. Are contractors being impacted by the salary reduction?

 

Contractor headcount and expense continue to be reviewed and reduced. AMD renegotiated our contract with Volt in December 2008 and reduced overall contractor markup by 10 percent.

 

Q27. Why aren’t we terminating all contractor relationships before taking additional actions on full time employees?

 

We will be reducing the number of contractors significantly, but due to business functions we will need to retain a smaller population of contractors where needed.

 

Restricting Overtime

 

Q28. Will the ability to work overtime be eliminated?

 

No, overtime will not be eliminated but we will implement tighter controls on the usage and approvals of overtime.

 

 

 

4. RETIREMENT SAVINGS PLANS

 

401(k) Plan (U.S. only)

 

Q29. What changes are we making to the 401(k) plan?

 

AMD is suspending the company match for 401(k) plans.

 

Q30. Is the suspension of the company match to the 401(k) plan a permanent change?

 

No, we will continue to monitor the economic environment and our business performance to determine the appropriate time to reinstate the company match.

 

Q31. When is this effective?

 

We will be suspending the company match effective February 2, which will appear in the February 12 paycheck.

 

Q32. Can I change my 401(k) contribution?

 

Yes, you can make changes to your 401(k) contribution rates online at MyHR > My Personal Data > Benefits Overview > 401(k). 

 

You will have until January 23 to have these changes affect the February 12 paycheck.

 

Q33. Will the enhanced 401(k) match that appeared in the first payroll run of 2009 be reversed?

 

No, the enhanced 401(k) match in the first payroll run of 2009 will not be affected in any way.

 

Group Registered Retirement Savings Plan (RRSP) (Canada only)

 

Q34. Why are we not implementing the RRSP company match?

 

Although we recently communicated that the RRSP match would be implemented in Q3 2009, we will no longer be moving forward with the company match due to the unfortunate economic environment as well as our current business state. Not implementing the RRSP company match in 2009 represents a significant cost savings.

 

Q35. Is not implementing the company match the to the RRSP plan a permanent change?

 

No, we will continue to monitor the economic environment and our business performance to determine the appropriate time to implement the RRSP company match.

 

 

 

5. OTHER

 

Expatriate Assignments

 

Q36. How will current expat agreements be impacted?

 

We will review all expat agreements to determine what actions need to be taken and when.

 

Q37. Are we changing the expat program in order to save costs in the future?

 

We may make changes to the expat program after further review.

 

Q38. Because of the severe travel restrictions, are expatriates allowed to take Home Leave as the policy states?

 

Yes, Home Leave is an important part of the expatriate assignment and will continue.

 

Promotion and Equity Adjustment Freeze

 

Q39. Why are we freezing the promotion process?

 

Given the economic environment we are in and our need to preserve cash, we are freezing all promotions.

 

Q40. When is the freeze in effect?

 

The freeze will take effect January 19, 2009.

 

Q41. When will promotions be back in effect?

 

We will continue to monitor the economic environment and our business performance to determine the appropriate time to reinstate the promotion process.

 

Q42. Is the promotion freeze for all employee levels and roles in the organization?

 

Yes, the promotion freeze will affect all employee levels and roles in the organization.

 

Q43. Will there be any exceptions to the promotion freeze? 

 

Exceptions will have to be approved by a corporate staff member and there will be very strict guidelines that must be met for any exceptions to be approved. We will share details of those guidelines in the coming weeks.

 

Q44. If a job is posted and it is at a higher level than my current role can I apply?

 

Yes, employees can apply for any open positions no matter what the salary level.

 

Hiring Freeze

 

Q45. Will there be any exceptions to the hiring freeze?

 

Any exceptions to the hiring freeze will need to be approved by a corporate staff member.

 

Q46. If I have a business critical need regarding hiring, what is the process to gain corporate staff member approval?

 

We will communicate the corporate staff member approval process to management by end of day Monday, January 19.

 

Q47. If I am currently in mid-process of extending an employment offer or finalizing a relocation, how should I get corporate staff member approval for this activity?

 

Please contact your HR Business Partner to help drive any current processes until further information is available.

 

Relocation

 

Q48. Are we eliminating relocation compensation for approved new hires?

 

No, relocation compensation will not be eliminated but all relocation costs will need to have a corporate staff member’s approval.

 

Stock Option Exchange Proposal

 

Q49. What is the status of the stock option exchange proposal?

 

The stock option exchange proposal has been delayed.

 

Q50. When will AMD seek approval of a stock option exchange?

 

We will include the stock option exchange proposal in the annual meeting proxy filed with the U.S. Securities and Exchange Commission in March 2009. Stockholders will vote on the proposal at the annual stockholder meeting in May 2009.

 

Q51. When will I receive more information?

 

If the program is approved by stockholders, we will include additional information shortly thereafter. This information will include timing, plan details and the exchange process. In the meantime, SEC rules prohibit us from communicating any additional information.

 

Eliminate 2009 Merit Program

 

Q52. Why are we eliminating the 2009 Merit Program?

 

The elimination of the 2009 merit program represents a significant cost savings. Due to the unfortunate economic environment as well as our current business state, AMD is reducing costs wherever possible. We will evaluate the economic environment and our business performance early in 2010 to determine the feasibility of a merit program.

 
Also read:

AMD to cut further 9 percent of workforce