When Advanced Micro Devices Inc. (NYSE: AMD) of Sunnyvale, California, bought Markham, Ont.-based ATI Technologies Inc. for US$5.4 billion in the fall of 2006, the predictable downsizing was light. About half of the 375 cuts (mainly in HR and finance) came out of the much smaller ATI, which lost 4.5% of its pre-acquisition workforce of 4,000. Though light in number, the layoffs had the potential to tarnish the deal for the remaining employees of ATI a firm with a stellar history and strong esprit de corps.
AMD, currently battling market leader Intel, couldn't afford the typical byproducts of layoffs: poor morale, resentment and half-hearted buy-in by remaining employees. The slightest disruption to R&D would erode ATI's edge over rival Nvidia in the hypercompetitive graphics processor market. And to achieve the synergies that inspired the deal, AMD and ATI's engineers had to work as one team.
“The merger was for growth and expanded innovation,” says Dave Orton, former CEO of ATI, now executive VP of AMD's visual and media businesses. “Our goals were to keep the (R&D) teams focused on what they were doing in the short term, and looking at how they could do more with each other in the long term.”
The company's integration steering committee, composed of top executives from AMD and ATI, and advised by McKinsey & Company, managed the layoffs' impact. After the July 24 merger announcement, the committee recruited leaders from every functional area, including HR and R&D. Three weeks later, this team sat down in Markham to talk about merging the two companies. It created blueprints of the goals, deliverables and organizational structure of the merged entity. When the deal closed, the steering committee led communications about how the two companies would become one.
The process minimized fallout from layoffs. It quickly established that there was no need to lay off engineers. It formalized goals for R&D teams, to keep them focused. And it provided reliable information about how layoffs would affect employees.
“We forestalled panic,” Orton says. “It was tricky. The announcement of the merger was on Monday morning. Tuesday and the rest of the week, we communicated face-to-face and by Web, audio and video across the company to stabilize everybody about the layoffs.”
Five months on, Orton points to announcements of AMD's speed-demon single-system Accelerated Computing platform for scientific applications and its AMD 690 series chipset, which brings together AMD CPU and platform technology and ATI GPU (graphics processing unit) technology, to show the merger is already boosting innovation.
Standard & Poor's expects AMD's product line to benefit from the ATI acquisition long-run, but notes the company still faces integration risks, alongside the downward price pressure and market share worries in its core chip business.
In late March its stock was trading at US$13.08, shortly after the company warned it would not meet first-quarter earnings guidance. That compares to $17.30 the day the merger was announced, and $20.24 the day it closed. Including ATI operations, acquisition and integration charges, and stock-based compensation expenses, AMD lost US$166 million in 2006 on operations based on $5.65 billion in operating income.
“Longer term, the merger allows a greater degree of innovation, as AMD can integrate a wider variety of technology from ATI, including graphics, into the CPU,” says Dean McCarron, owner of Arizona-based Mercury Research, which specializes in PC component market research. “As well, some emerging segments such as the handheld graphics market ATI has a large presence in potentially open the door to other AMD technologies. It'll be about two years before the real fruits of the merger begin to be seen.”