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AMD spins off manufacturing with new company

Abu Dhabi invests billions in struggling chip firm

| Posted: Oct 7, 2008 6:47 am

AMD issued an announcement earlier today stating that it would soon make a significant corporate announcement, but before they got a chance, the news slipped out curtsey of Bloomberg who got hold of the news early.

 

AMD plans to spin off the manufacturing of its chips in a deal with a great deal of investment from the Abu Dhabi city government.

 

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Oct. 7 (Bloomberg) -- Advanced Micro Devices Inc., the computer-chip maker struggling to compete with Intel Corp., plans to spin off its manufacturing plants as part of an $8.4 billion investment from the Abu Dhabi government.

 

Abu Dhabi will pay AMD $700 million for a stake in a new company that will own two plants in Germany and build another in New York. The new company, which will assume $1.2 billion of AMD's debt, will receive as much as $6 billion from Abu Dhabi to expand the factories and get $1.4 billion in operating capital. Abu Dhabi will also pay $314 million to double its stake in AMD to 19 percent, AMD said yesterday.

 

The cash infusion is a lifeline for AMD, which may report a third straight annual 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. Abu Dhabi is building on a 2007 investment as it seeks a foothold in the chip industry.

 

''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 new company, called Foundry Co., 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 having to invest billions of dollars for plants, said Dirk Meyer, who became AMD chief executive officer in July.

 

AMD rose as much as 28 cents, or 6.6 percent, to the equivalent of $4.51 in Frankfurt trading from the close of $4.23 in New York Stock Exchange composite trading yesterday. The stock traded at $4.43 as of 9:19 a.m. in Germany.

 

You can read the full story from Bloomberg, over here.

 

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