AMD to Spin-Off its Fabs – Splitting into Two Companies! [update]

Advanced Micro Devices is preparing a big announcement today, Tuesday October 7, at 5 a.m. PDT.

http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=AMD%3AUS&sid=axKo70pBepvE

Speculation is rampant that AMD is going to cut costs by spinning off its manufacturing operations to a new joint venture that is mostly financed by investors associated with the government of Abu Dhavi.

It appears likely that this announcement will focus on the company’s structure and it is possible AMD will announce that it will phase out its chip-fabbing plants to become completely fabless instead.  Asset lite is what AMD has apparently been aiming at for months, which means they will be spinning off all of their manufacturing so they can focus completely on design.  If this is the case, it could lead to thousands of layoffs and the closing of some sizeable AMD fabs facilities around the world  So far, AMD has been desperately strapped for cash as its share price continues to plummet, making it impossible for AMD to afford the massive payoff it would be forced to make if it were to shut down manufacturing.

Speculation is that AMD has secured more off-shore financing, possibly Abu Dhabi who already took an 8% percent stake last November.  Hector Ruiz has already stepped down as CEO and AMD is in further need of serious restructuring.  Maybe they are taking that step.

We’ll know soon.

Stay tuned,

Mark Poppin

ABT Editor

UPDATE:

It happened.  AMD appeared to lose its opportunity to really explain what it was doing while it had the spotlight this morning and probably should have prepared its presentation better, considering they have evidently been working on this deal for over a year.  The grist of the announcement is that AMD is going fabless as soon as possible. They are splitting into two companies; AMD will be concentrating on design and it will be splitting off a new company called The Foundry Company.

Fabs are extremely expensive and AMD can no longer afford them since their acquisition of ATI.  AMD’s rising debt and declining revenue has stopped their future expansion plans necessary to keep even with Intel.  Even worse, they are not recovering their investments on their current fabs.  The solution was for AMD to become asset-lite, and with the infusion of billions of dollars from investors they can also modernize their facilities and even build a new fab in Albany, NY using some attractive tax breaks offered by that state.  That last location may be an excellent choice as they hope to have the US government’s approval for this deal by the end of this year.

Mubadala Development, representing the country of Abu Dhabi, already made a large investment in AMD in 2007 and will again be making investment of almost $6 billion in the new Foundry Company and into AMD.  AMD will have 44.4% of the new company and half of the voting rights.  Hector Ruiz will be leaving AMD to become the Foundry Company’s new chairman, which may be good news for AMD as it stagnated under his leadership.  Once this spinoff is complete, AMD will be The Foundry Company’s first customer and although it is expected to begin to fab all CPUs, they may later expand also to GPU and chipsets.

Without a doubt, AMD has managed to secure its short-term future today – if it can secure approval from the US government.  Whether this is just a huge bandage or a long-term solution to their problems, remains to be seem.  Without the spin-off, their continued existance as AMD next year was in doubt.

We will continue to follow this story and update you as news happens.