Mani,
Good read. I wish, the author had researched into assessing current market value of AMD's Communications group.
ebnews.com _______________________
AMD bets the farm on its microprocessor business
By Mark LaPedus, Electronic Buyers' News, (10/08/99, 06:13:10 PM EDT)
Placing a huge and perhaps final bet to fund its struggling microprocessor business, Advanced Micro Devices Inc. last week went against the grain by putting its profitable communications-chip business up for sale.
Though there were no buyers for AMD's Communications Group as of last week, the announcement prompted a flurry of speculation about the future of this operation, as well as the company as a whole.
In recent months, AMD has unloaded two major product groups to fund its core business, microprocessors. Last April, the company sold its PLD subsidiary, Vantis Corp., to Lattice Semiconductor Corp. for $500 million. AMD is now selling its profitable but low-key communications-IC business.
What's next? Some believe AMD could unload its last major product group, flash memory, leaving it to survive in the cutthroat MPU market against the likes of Intel Corp."AMD continues to double-down its bets after selling Vantis, and my spec-ulation would be that the flash business would be up for grabs as well," said Scott Randall, an analyst with SoundView Technology Group, Stamford, Conn. "It's clear they're trying to fund their microprocessor business."
AMD chairman and chief executive W.J. Sanders III vowed last week to keep the flash-memory unit within AMD's fold, but did acknowledge in a conference call that the communications business would be shopped around.
The move, which shocked analysts and competitors alike, comes at a time when most chip makers are rushing into the communications-IC market to capitalize on huge Internet-driven demand.
The communications-IC business is projected to grow from $4.9 billion in 1995 to $10.8 billion next year, according to VLSI Research Inc., San Jose. Even AMD's processor rival, Intel, is aggressively moving into the communications-IC sector. In just the last year alone, Intel has spent more than $2 billion on five major acquisitions in the communications-IC sector.
AMD itself was among the communications converts. Over the last year, the company beefed up its offerings in several segments, including ADSL, central-office switching, home-networking, LAN/WAN, and other markets. But this business, which generated $292 million in sales last year, took a back seat to the MPU business.
AMD has retained two investment banking firms Donaldson, Lufkin & Jenrette Inc. and Salomon Smith Barney Inc.¥to find a buyer for its Communications Group. This organization, which includes the Communications Products and Networking Products Divisions, has 400 employees and accounted for slightly more than 10% of the company's revenue in the third quarter.
The Communications Group is expected to be sold by the first half of 2000. Analysts speculated that AMD could be an attractive fit for several companies, including Conexant Systems Inc. and Motorola Inc.
Although the market isn't glamorous, AMD is one of the world's leading suppliers of so-called SLICs (Subscriber Line Interface Circuits) and SLACs (Subscriber Line Audio Circuits), which are designed for use in line-card applications in telephone switching and related applications.
During the last year, AMD has also attempted to move into more glamorous markets such as ADSL, home networking, and LAN/WAN, in which AMD is not yet a major player, analysts said.
Perhaps AMD's biggest concerns are the bottom line and its processor business. Last week, it reported a net loss of $106 million, or 72 cents per share, on sales of $662 million in the third quarter, compared with net income of $1 million on $685.9 million in revenue for the same period last year.
The good news for AMD is that it beat analysts' earnings estimates by 25 cents. For the fourth quarter, the company's break-even point has risen to $850 million in revenue, which Sanders called a "very tough goal."
Again, manufacturing problems contributed heavily to AMD's loss. This time, however, it wasn't AMD's fault. Motherboard makers had problems implementing AMD's reference design when Athlon was launched on Aug. 9, and the Taiwan earthquake caused a one-week vacuum at the end of September, during which no Athlon motherboards were shipped. AMD manufactured 350,000 Athlons during the quarter, but sold 200,000 because of the motherboard shortage.
"We believe that all things being considered, we will have enough motherboards to give us a good shot at our goal" of 1 million Athlons shipped during the fourth quarter, Sanders said. "The bigger question is that motherboards themselves are not any good if they aren't populated with chips," he said. "We're heavily dependent on what happens at UMC and TSMC for chip availability. Indications are that it's going to be a hand-to-mouth situation."
Sanders said AMD is monitoring the motherboard supply situation daily, and will provide a more concrete analysis at the company's analysts meeting next month. AMD Sanders professed himself pleased with the Athlon manufacturing ramp, which has been converted to the 0.18-micron manufacturing process. As Athlons begin rolling off the lines at Fab 30 in Dresden during the second quarter of 2000, manufacturing lines in Fab 25 in Austin will be converted to flash production, Sanders said.
Mark Hachman and Bolaji Ojo contributed to this story.
ebnews.com _______________________
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