Ten days before it is due to report earnings, AMD has warned investors that it would restructure its business model in reaction to a steep drop in quarterly revenue.

AMD expects to report revenue of $1.23 billion (£626 million) for the quarter ending 31 March 2007, down from the company's prior forecast of $1.6 billion to $1.7 billion. The number would also be lower than AMD's performance in the first quarter of 2006, when it reported revenue of $1.33 billion.

AMD has relied heavily on sales of its Opteron server chip to produce healthy revenue in recent years, but that stream has shrunk since competitor Intel launched its similar "Woodcrest" Xeon server chip in November. Since then, Intel has upgraded its manufacturing from 90-nanometer chip designs to 65nm chip designs faster than AMD, which is still targeting mid-2007 for the launch of its "Barcelona" quad-core Opteron chip. Barcelona will be AMD's first 65nm server/desktop chip.

More specifically, the earnings shortfall has been driven by sharp drops in both units sold and their average selling prices, particularly in the resale channel of the company's computing solutions area, AMD said in the statement. Computing solutions includes desktop and laptop PCs, workstations and servers powered by 64-bit processors

To fix the problem, AMD will cut its 2007 capital expenditures by $500 million and limit corporate hiring to only critical positions. Those moves should help to increase the company's operational efficiencies and lower its operating cost structure, the company said. AMD is scheduled to report its formal earnings on 19 April.