The Sunnyvale, California-based company's job cuts, which amount to more than 1,600 workers out of 16,800 worldwide, were expected. The cuts are slated to start this month and finish by September.

But the sales miss surprised Wall Street. Analysts polled by Thomson Financial were expecting AMD to ring up US$1.61 billion (euro1.03 billion) in sales; the company said Monday that sales for the three months ended March 29 were closer to US$1.5 billion (euro960 million), a 15 percent drop from the year-ago period.

AMD shares fell 14 cents, or 2 percent, to US$6.20 in after-hours trading. The stock had risen 11 cents to close at US$6.34 before the layoffs and sales warning were released.

AMD has fallen on hard times as it confronts intensifying competition from Intel Corp., the world's largest semiconductor company, and tries to digest the US$5.6 billion (euro3.57 billion) acquisition of graphics chip maker ATI Technologies Inc., which AMD recently said is worth about 30 percent less than when it was acquired.

AMD views the acquisition as a key way to attack Intel and incorporate better graphics capabilities into its chips.

Graphics are now a key battleground for chip makers as more and more Internet surfing involves video and as the graphics requirements for computer games are heightened.

Lengthy product delays for its new Opteron server chip, a product critical to the company's financial recovery, also hurt AMD's competitiveness. Technical glitches pushed back the chip's full release for months after the official launch in September.

Intel has endured its own financial hardships as a result of the battle with AMD, whose restructuring is the latest in a series of aggressive cost-cutting maneuvers by both the No. 1 and No. 2 makers of microprocessors, which act as the brains of personal computers.