lifeline of up to$8.4bn for AMD from Abu Dhabi
Posted in Uncategorized on 10/09/2008 08:11 am by ebrahimAdvanced Micro Devices will spin off its chip plants and receive a lifeline of up to $8.4bn from Abu Dhabi as it struggles to compete with Intel, its larger rival.
AMD announced yesterday a long-awaited “asset lite” strategy that will relieve it of the burden of trying to maintain manufacturing parity with its Silicon Valley neighbour.
Its shares, coming off 16-year lows, rose 20 per cent in midday trading to $5.10.
AMD plans to create an enterprise, initially called The Foundry Company, with Abu Dhabi’s Advanced Technology Investment Company (ATIC). It would absorb its existing production units, or “fabs”, expand a facility in Dresden, Germany, and spend $3.2bn on a new plant in upstate New York, creating more than 1,400 jobs.
AMD has lost a manufacturing edge to Intel as it has been unable to maintain the pace and investment of its rival in more efficient processes. It reported its seventh successive quarter of losses in July and replaced Hector Ruiz as chief executive.
Mr Ruiz, AMD chairman, will move across to take that role at the new company, with Doug Grose, head of manufacturing, becoming chief executive of The Foundry Company.
ATIC will pay AMD $700m in cash for a 55.6 per cent stake in the new company, and will add $1.4bn to fund its operations, with a promise of investment of between $3.6bn and $6bn on new facilities in the next five years.
$1.2bn of AMD’s debt will be transferred to the new company and AMD will receive an investment from Abu Dhabi’s Mubadala Development Company to increase a stake that it acquired last year.
Mubadala, which paid more than $600m at $12.70 a share last November for an 8.1 per cent stake, has boosted its holding to 19.3 per cent with just a $314m investment, as AMD stock closed on Monday at just $4.23.
Dirk Meyer, AMD chief executive, said the move allowed the group to maintain access to leading-edge technologies without having to make the capital-intensive investments of semiconductor manufacturing.
AMD plans $900m in capital expenditure this year, compared with $11.2bn in spending by Intel.
The two divide up all but a small fraction of the “x86″ microprocessor market, with Intel taking a share of more than 80 per cent.
Intel has beaten AMD to new levels of miniaturisation of circuits to widths of 45 billionths of a metre.
It has questioned whether AMD can put in the investment to move up to the next 450mm size for circular wafers, from which chips are cut.
There are no plans to take The Foundry Company public and the deal will be subject to review by the Committee on Foreign Investments in the United States. AMD will transfer about 3,000 employees to The Foundry Company, which will have its headquarters in the US.
AMD had $5.3bn in debt by mid-year and wrote down its $5.4bn acquisition of graphics chipmaker ATI in 2006, recording $2.4bn in impairment charges.
