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Advanced Micro Devices is sending Wall Street the wrong sort of signals. Intel on the other hand, should be wearing a wide grin.

After the market closed on Monday, Advanced Micro Devices (nyse: AMD - news - people ) announced it was cutting its payroll and its sales outlook for the first quarter. As of 5:10 p.m. in New York, shares of the Sunnyvale, Calif.-based company dropped 2.1%, or 13 cents, to $6.20, in after-hours trading.

"On the one hand the size of the revenue shortfall is not that great," said Brian Piccioni, an analyst at BMO Capital Markets, "but what we found surprising with the announcement is the lower than expected sales across all business segments. We had thought the graphics business would do better than the micro processing business, which had been subject to delays."

The chip maker cut its sales outlook for the first quarter, which ended on March 29, to $1.5 billion, well short of Wall Street's $1.6 billion forecast, and said it would begin trimming its 16,000-person workforce by 10%. AMD says it will complete the job cuts by the end of the third quarter, and take a related charge in the second quarter. It didn't disclose restructuring costs.

"We believe that AMD remains in a very difficult situation from Intel (nasdaq: INTC - news - people )'s new product launches," said John Lau, a senior analyst at Jefferies, "and as a result the announcement indicates they may have lost additional market share to Intel." Lau added that going forward AMD remains in a difficult position due to its need to upgrade its wafer fabrication to 45 nanometer, and its current cash position indicates they do not have the resources.

Piccioni for his part noted that the staff cuts blunted the effect of the lower sales outlook, but warned that such a move bodes poorly for any hopes of a strong year. "The Street welcomes staff reductions, but a 10% cut signals that the command center doesn't see a great year," Piccioni said. "Look at the zen of the staff reduction, if the revenue was in line with the rest of the year they would not announced a 10% cut, which is huge from a supposedly growth company."

Piccioni quipped that there had been rumors of looming staff reductions at AMD, adding that there is another intriguing rumor which suggested that the company might be in the process of separating itself from its manufacturing facilities.

"That would be an intriguing development," Piccioni said. "It's only a rumor, but it sounds like a real good rumor because it would probably help the company's balance sheet, which is an increasing focus for investors, and a move they would probably welcome."

Wall Street Readies For Earnings

On The Move: Citigroup

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