AMD Advances 8.5% After Investment From Abu Dhabi (Update2)
By Ian King
Oct. 7 (Bloomberg) -- Advanced Micro Devices Inc., the chipmaker struggling to take on Intel Corp., rose 8.5 percent after deciding to spin off some plants, part of an investment of up to $8.4 billion from the Abu Dhabi government.
AMD climbed 36 cents to $4.59 at 4 p.m. in New York Stock Exchange composite trading. The shares gained as much as 31 percent earlier in the session.
The cash infusion is a lifeline for AMD, which may report a third straight loss this year and is falling behind on investments needed to keep up. Intel spends more on plants and research than AMD makes in annual revenue.
``People thought that AMD was on the brink of bankruptcy,'' said Doug Freedman, an analyst at American Technology Research in San Francisco. ``It definitely pushes them far away from that.''
The Abu Dhabi government will pay $700 million for a stake in a new entity that will own two plants in Germany and build another in New York, AMD said yesterday. The new company also will get as much as $6 billion from Abu Dhabi to expand the factories and $1.4 billion in operating capital. Abu Dhabi also will pay $314 million to double its stake in AMD to 19 percent.
The new company, to be called Foundry Co. temporarily, will assume $1.2 billion of AMD's debt. AMD's 6 percent convertible notes due in 2015 jumped 7.08 cents, or 18 percent, to 46.20 cents on the dollar to yield 21.8 percent, according to Trace, the Financial Industry Regulatory Authority's bond-pricing service. That's the biggest one-day gain since the securities were sold in April 2007.
AMD's Struggles
The business will make processors for AMD and seek contracts from other companies, while AMD will continue to design and market chips. That means AMD can develop products without investing billions of dollars in plants, said Dirk Meyer, who became AMD chief executive officer in July.
``It will make AMD financially strong and more tightly focused,'' Meyer, 46, said in a telephone interview.
AMD, based in Sunnyvale, California, has struggled since its founding in 1969 to keep up with Intel. AMD has posted nine annual losses in the past 15 years and its stock had fallen 90 percent since reaching $42.10 in February 2006.
Abu Dhabi is building on a 2007 investment as it seeks a foothold in the chip industry. Advanced Technology Investment Co., a newly created arm of the Abu Dhabi government, will own about 56 percent of the manufacturing company, leaving AMD with the rest.
About 3,000 of AMD's 16,000 workers will move to Foundry Co., which will be led by AMD executive Doug Grose. AMD Chairman and former CEO Hector Ruiz will step down as a director and head the board at the new company.
Spending on Plants
Abu Dhabi will give the new manufacturing company a minimum of $3.6 billion and a maximum of $6 billion to spend on new plants and equipment over the next five years, according to the agreement. The new company also may examine building a plant in Abu Dhabi if demand justifies such a move, Grose said on a conference call today.
The New York plant, in Saratoga County between the towns of Stillwater and Malta, will employ 1,400 people. The company will take advantage of a 2006 agreement with the state to obtain $1.2 billion in cash and other incentives.
AMD ended the second quarter with about $5 billion in long- term debt and $1.57 billion in cash and equivalents.
The cost of protecting AMD's debt from default has spiked this month. Contracts on AMD's bonds jumped to 39.3 percent, from 14.5 percent on Sept. 1, CMA Datavision prices show.
Doubling Investment
Mubadala Development Co., another investment arm of Abu Dhabi headed by Khaldoon Al Mubarak, is doubling its stock interest in AMD less than a year after its initial investment, when it paid $12.70 a share, triple the stock's closing price yesterday.
``Obviously it's been a very difficult year from the perspective of the performance of the shares of AMD,'' Mubarak said. ``That aside, we totally buy into the asset-smart strategy that AMD's pursuing. We will be able to realize the type of returns that we had always anticipated.''
Abu Dhabi's investment units are extending beyond oil and into technology, real estate and financial services. The emirate has stakes in Citigroup Inc., private-equity firm Apollo Global Management LLC and luxury carmaker Ferrari SpA. Abu Dhabi is the capital of the United Arab Emirates, which also includes Dubai.
AMD's existing capital budget of $1.1 billion this year is the lowest since 2003. The company compounded its debts with the 2006 purchase of graphics chipmaker ATI Technologies Inc. The $5.4 billion transaction now dwarfs AMD's stock value of $2.79 billion.
Santa Clara, California-based Intel will invest $11.2 billion this year in new plants, equipment, research and design, compared with the $5.92 billion analysts estimate AMD will get in revenue.
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
Last Updated: October 7, 2008 16:21 EDT |
