Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) is laying off 20 percent of its staff following a disappointing quarter, officials announced today after the stock markets closed.

At least one facility is being shut down in the process: a design center in Israel, accounting for about 45 of the 150 employees being cut. AMCC's announcement notes that the company will "consolidate other facilities."

AMCC expects the moves, which should be completed by March 31, to trim operating expenses by $6 million to $8 million per quarter. The news lifted AMCC stock by 8 cents (2%) to $3.49 in early after-hours trading.

For its second quarter ended Sept. 30, AMCC reported losses of $18.3 million, or 6 cents per share, on revenues of $61.1 million, compared with losses of $21.8 million, or 7 cents per share, on revenues of $67.4 million the previous quarter. AMCC reported losses of $22.9 million, or 8 cents per share, on revenues of $25.1 million for its second quarter last year.

AMCC isn't spelling out which products or divisions were affected by the cuts, but a good guess might be long-haul transport products, says Arnab Chanda, analyst with Lehman Brothers. "If you think about it, communications products got hurt more than storage, and within communications, transport probably got hurt more than anything else," he says.

Reacting to slow times in telecom, AMCC has been trying to augment its telecom-chips business by getting into storage networking, with the acquisitions of JNI Corp. and 3Ware Inc. (see AMCC Moves Into Storage and AMCC Buys More Storage).

AMCC officials were not available to specify what the Israel design center was working on. One source claims the Israel facility was working on chips in the nP3700 network processor line, but an AMCC spokeswoman says that would have been one of the nP3700 variants, as Israel wasn't responsible for the whole product line. She added that any product development in process in Israel is being moved to other locations.

Telecom chip vendors are hurting all around, with AMCC, PMC-Sierra Inc. (Nasdaq: PMCS), and Vitesse Semiconductor Corp. (Nasdaq: VTSS) all reporting depressed earnings, and the latter two noting that sales will sag for at least one more quarter (see PMC-Sierra Q3 Revenues Dip and Vitesse Makes a Mess). Chanda doesn't think PMC and Vitesse need to announce layoffs just yet, although some cuts could start brewing if the companies can't forecast any growth for the first quarter of 2005. "It depends on the slope of the recovery," he says.

For now, chip companies, including PMC-Sierra, are saying their sales slump will only last another quarter or two (see Chip Gloom Shall Pass and Valley Wonk: Chips Are Down).

AMCC isn't the only company closing up shop in Israel. Last week, Israeli publication Globes noted that Infineon Technologies AG (NYSE/Frankfurt: IFX) and Mindspeed Technologies Inc. (Nasdaq: MSPD) were shutting down Israel-based centers as well. Officials from those companies were not immediately available to comment.

— Craig Matsumoto, Senior Editor, Light Reading

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