Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : AMD:News, Press Releases and Information Only! -- Ignore unavailable to you. Want to Upgrade?

To: Brian Hutcheson who wrote (5910)	5/1/1998 2:53:00 PM
From: Paul Engel	Respond to of 6843

Brian - Re: " The die size at 81mm is still much smaller than the PII and should keep production costs down around $35 a cpu ." You had better tell this to Moody's...they think otherwise! Paul {=======================} biz.yahoo.com Friday May 1, 1:32 pm Eastern Time Moody's cuts Advanced Micro Devices ratings (Press release provided by Moody's Investors Service) NEW YORK, May 1 - Moody's Investors Service has lowered all of the debt ratings of Advanced Micro Devices, Inc. (AMD). The downgrade reflects Moody's view that bondholder risks have increased as a result of the company's inability to execute a fast and economic production ramp of its flagship K6 microprocessor and the company's decision to finance its capital expenditure program with debt, as evidenced by its proposed $400 million subordinated debt issuance. As a result, leverage will rise to levels that are quite high for a semiconductor company and free cash flow from operations (after capital expenditures) is expected to be insufficient to cover cash interest payments over the next few quarters. Proceeds from the issuance will be used to upgrade process equipment at Fab 25 and for other corporate purposes. This concludes a review initiated January 15, 1998. The outlook is negative at the new rating category. Moody's said that AMD's business risks have increased as a result of its inability to execute a timely and economic introduction of its flagship K6 microprocessor at 0.35 micron design rules. Although the company is currently producing microprocessors at 0.25 micron design rules, Moody's is uncertain as to whether AMD will be able to sustain full production capability. This is critical in order to produce sufficient quantities of low priced microprocessors that target the mainstream desktop as well as the entry level and sub $1,000 PC markets. Moody's went on to say that although the emergence of the sub $1,000 PC market has created additional demand for lower cost microprocessors, Moody's noted that Intel (senior unsecured rated A1) and Cyrix (owned by National Semiconductor - subordinated rated Ba2) have also targeted this market, which will pose an additional external challenge to AMD's ability to profitably participate in this growing yet very cost sensitive segment. The rating agency said that although a number of top tier personal computer manufacturers have supported AMD as an alternative supplier of Windows compatible microprocessors, the company has been unable to achieve adequate production volumes of its current K6 microprocessor. Consequently, the company has missed windows of potentially high profit and cash flow opportunities during periods of strong demand, thus contributing to a deterioration in operating cash flow and an inability to internally fund high levels of microprocessor related capital expenditures. This has lead to the new $400 million subordinated convertible debt issuance, thus increasing the company's financial risk. Ratings downgraded are: Senior secured -- $400 million to Ba3 from Ba1 Senior secured bank term loan -- $250 million to Ba3 from Ba1 Senior secured bank revolving credit -- $150 million to Ba3 from Ba1 Senior secured shelf registration -- (P) Ba3 from Ba1 Senior unsecured shelf registration -- (P) B1 from Ba2 Subordinated shelf registration -- (P) B3 from B1 Preferred stock shelf registration -- (P) ''b3'' from ''b1'' In addition to using its cash balances ($307 million last quarter) and operating cash flow to invest in capacity and technology advances, required quarterly principal amortization of $31 million on the $250 million senior secured bank loan beginning October 1998 will represent an additional call on cash. Also, while AMD has arranged favorable financing terms for its next generation fab in Dresden Germany, the company will still need to finance a material portion from its own resources. In response to its microprocessor production difficulties and the desire to better meet potential demand, AMD has recently entered into a two year microprocessor foundry arrangement with International Business Machines (senior at A1) whereby IBM will produce K6 chips solely for marketing by AMD. Volume production under this agreement is not expected until late third quarter of 1998, and at full run rate is still only expected to provide a portion of AMD's total microprocessor production. While realization of this agreement may help to solve some of AMD's chronic production problems, in addition to serving its two largest microprocessor customers (IBM and Compaq), Moody's is not convinced that AMD can maintain a viable and robust long term business model under this foundry arrangement. Moody's noted that the all of the senior debt issues are secured by the company's semiconductor facility in Austin, Texas, known as Fab 25, which is used to make its K6 microprocessor. While the ultimate recovery value of the plant and its fabrication tools is uncertain, Moody's does ascribe some benefit of such security to the secured bondholders and bank lenders. Part of the proceeds of the new issuance will be used to upgrade equipment in Fab 25, which equipment folds into the existing security package. The new subordinated convertible debenture is not secured. The rating agency noted that AMD's non-microprocessor businesses (communications integrated circuits, flash memory, and programmable logic) account for about 69% of its latest twelve month revenues and all of its operating profit, as its microprocessor business operates at a loss. However, revenues in these businesses have been flat for some time and the near term outlook for these combined businesses is for continued pressure on both the revenue and profit line due to a combination of slower end demand, excess market capacity and thus heightened price competition. Advanced Micro Devices, Inc., headquartered in Sunnyvale, California, designs and manufactures microprocessors, flash memory, programmable logic devices and other semiconductors products. More Quotes and News: Advanced Micro Devices Inc (NYSE:AMD - news) Related News Categories: options Help Copyright c 1998 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon See our Important Disclaimers and Legal Information. Questions or Comments?