Chipmaker Advanced Micro Devices Inc. says it will lay off 4% of its staff, which works out to be about 1,000 jobs based on its headcount of 26,000 employees at the end of last year.

The company explained today that the job cuts are necessary for it to get a stronger foothold in the market for artificial intelligence processors, which represents its biggest growth opportunity by far, but is currently dominated by rival chipmaker Nvidia Corp.

In a statement, AMD said the layoffs were about “aligning resources with our largest growth opportunities,” adding that it is committed to “treating impacted employees with respect and helping them through this transition.”

AMD is the world’s second-largest manufacturer of graphics processing units, or GPUs, which power the vast majority of AI workloads today. The company’s most advanced GPU is the Instinct-branded MI300X accelerator, which provides data center operators like Microsoft Corp., Amazon.com Inc. and Google LLC with an alternative to Nvidia’s H100 and H200 GPUs. However, although customers appear happy with AMD’s chips, the company trails far behind Nvidia, whose GPUs have become synonymous with AI.

AMD has long stressed that AI remains one of its most important growth opportunities, but despite its best efforts, Nvidia still accounts for more than 80% of global GPU sales, generating far more revenue than its rival.

Last month, AMD delivered decent enough third-quarter results, beating expectations and growing its revenue by 18%, but its guidance for the current quarter was less than convincing, and its stock declined more than 7%.

In an earnings call with analysts, AMD executives stressed that they’re expecting AI chip sales to generate about $5 billion in revenue this year, which would represent a fifth of its total projected revenue. The company has also forecast the total market for AI chips to grow to $500 billion by 2028, but it remains to be seen how big a share of that pie it will be able to command.

AMD’s struggles to overhaul Nvidia are evident in the price of its shares. While its stock is down 5% in the year to date, shares of Nvidia are up more than 200%, and it has become one of the top three most valuable publicly traded companies in the world.

AMD’s GPUs were originally conceived for gaming, providing the processing power needed for high-end graphics, but growth in this segment has stalled. In last month’s report, AMD said it expects revenue from its gaming division to fall by 59% this year, to just $2.7 billion. In the last quarter, sales there fell by an alarming 69%.

The decline in “semi-custom revenue” wasn’t really a surprise as AMD hasn’t launched any new gaming GPUs for quite a while, meaning that most of the people who would like one have probably already gotten one. So the business won’t pick up again until it launches a new generation of graphics cards for gamers.

AMD didn’t say exactly which departments or roles would suffer from the job cuts, simply stating that it is taking “targeted actions across various functions” in its organization. Shareholders were not particularly reassured by the company’s comments, as AMD’s stock fell 3% in the regular trading session.

While the company was coy on the exact nature of the layoffs and the reasons for them, industry analyst Rob Enderle said there is speculation that they might be linked to AMD’s recent acquisition of Silo AI Oy, a developer of AI systems that’s based in Finland. AMD announced it had acquired Silo AI in July, and it may be that there is some overlap, the analyst said.

“It’s not unusual for a CEO to take a broader look at the company and make a decision on whether or not to layoff some staff that are no longer needed, following an acquisition like this,” Enderle said.

Another possible motivation for AMD could be U.S. President-elect Donald Trump’s imminent return to the White House, Enderle said, as the new administration will likely dismantle some existing government policies.

“Trump’s win means that the Chips Act is now at risk, and it is likely that AMD is no longer anticipating getting as much money from the U.S. government,” the analyst said. “So that could be driving this realignment.”

Holger Mueller of Constellation Research Inc. said AMD probably thinks it doesn’t have the quite the right balance in terms of employee talent and expenditures. “We’ll see if the company is getting it right in the next few quarters, when we’ll see if its cost-base can be reduced or if it remains the same,” he said.

Whatever the reasons, AMD looks to be in a much healthier position than another of its rivals, namely Intel Corp., which recently announced a much more significant round of job cuts, saying it will lay off more than 16,000 of its staff across multiple business units.

Intel has struggled to jump on the AI bandwagon even more than AMD, and its GPU sales barely register. In addition, Intel has lost market share to AMD in key markets for central processing units, such as data center servers and personal computers.

Whereas AMD’s layoffs might be compared to a surgeon taking a scalpel to trim some of the fat, Intel’s actions are more akin to someone wielding an ax, hacking off chunks of its body in a desperate effort to reshape itself.

Photo: AMD