AMD will lay-off 375 workers as a result of its ATI purchase, according to press reports.

Analysts have said that the decision could also give the company valuable extra resources in its battle with rival Intel. The news comes just a month after AMD beat expectations with its fourth-quarter earnings.

AMD has been on a roll in recent months, winning important contracts with Dell and IBM, among others, and despite a new line of processors from Intel. To keep that momentum rolling, AMD must increase its production capacity, said Technology Business Research analyst Martin Kariithi.

The company can gain flexibility by cutting redundant jobs in the sales and marketing and general and administrative departments, he said.

AMD has announced plans to combine its processors with ATI's graphics and chipset technologies to create a family of more integrated chips for PCs and other consumer electronics devices. Once it has launched those new chips, AMD might replace some of the lost positions.

"From a manufacturing standpoint, AMD will keep driving to increase production capacity to keep gunning for Intel," Kariithi said. "To facilitate this, I expect AMD to continue increasing its manufacturing, tech support and engineering workforce. Toward mid-2007 AMD will once again seek to boost sales and admin staff in order support the new ATI/AMD products coming to market at that time."

The number of layoffs is small compared to AMD's total roster of nearly 15,000 employees and to Intel's plan to cut 10,500 jobs by the middle of 2007. Nonetheless, AMD has been so successful lately that the cuts came as a surprise.

Original reporting by IDG News Service