AMD Plans to Spin Off Manufacturing Operations
By DON CLARK and WILLIAM M. BULKELEYArticle
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Advanced Micro Devices Inc. Tuesday is announcing a broad plan to cut costs by spinning off its manufacturing operations to a new joint venture, according to people familiar with the matter.
The new venture, which will make chips for AMD and other companies, will take over facilities that include large AMD factories in Germany, with funding provided by investment entities associated with the government of Abu Dhabi, these people said. They will contribute cash to the venture as well as assume some of AMD's debt, they said.
One of the investors, Mubadala Development Co., already holds an 8% stake in AMD following a $622 million investment completed in 2007. Including the value of the AMD operations being contributed, the venture is expected to control assets worth about $5 billion, one person familiar with the situation said.
An AMD spokesman declined comment. Representatives of Mubadala could not be reached.
AMD has struggled with heavy losses, a tough battle against rival Intel Corp. and debts associated with its $5.4 billion acquisition of ATI Technologies in 2006. Hector Ruiz, AMD's chairman, has vowed for more than a year to complete a fundamental restructuring of the company to reduce the cost of running factories and developing new production processes, which largely determine the performance and cost of chips.
The strategy -- variously called "asset light" or "asset smart" by AMD officials -- reflects strategy changes that many companies have gone through to cope with rising costs and fierce price competition in the industry. Texas Instruments Inc., for example, has given up developing new processes for creating digital chips, though it still runs factories based on older, analog technology.
Instead of owning their own plants, most companies that design chips now rely on companies known as foundries that operate chip manufacturing services. The new AMD venture is expected to join the ranks of such foundries.
AMD has long relied on International Business Machines Corp. as its main partner in developing new production processes. IBM is expected to continue cooperating with the new venture company, one person familiar with the situation said.
An IBM spokeman could not be reached.
AMD's stock has been hit hard by its recent financial difficulties and the effect of a recent selloff affecting technology stocks. The stock fell nearly 7% Monday, trading at 4 p.m. in New York Stock Exchange composite trading at $4.23, off 30 cents, and well below its 52-week high of $14.73 in October 2007. |
