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10/7/2008
01:25 PM
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AMD Spins Off Manufacturing Operations

The company hopes the breakup will reverse a string of money-losing quarters and dramatically improve its ability to compete with Intel.

Advanced Micro Devices on Tuesday announced that it would spin off its manufacturing operations into a new company, a breakup that the chipmaker hopes will reverse a string of money-losing quarters and dramatically improve its ability to compete with rival Intel.

AMD would hold a minority stake, 44.4%, in the new company, temporarily called the Foundry Co. The Advanced Technology Investment Co., formed by the Abu Dhabi government, would hold the remaining 55.6%. AMD, however, would have equal voting rights with ATIC, since the company board would be equally divided between the two companies.

The deal is expected to help AMD meet its critical need to reduce costs following a string of quarterly losses that have amounted to several billion dollars. Along with sharing control over manufacturing facilities with AMD, ATIC would pay the billions of dollars needed to continue with plans to expand AMD's fabrication facilities in Dresden, Germany, and build a new fab near Albany, N.Y., which would employ more than 1,400 people. AMD's Austin, Texas, manufacturing operations also would be turned over to ATIC, which would be headquartered in Silicon Valley.

Under the deal, ATIC would pay $2.1 billion for its stake in the new company, with $700 million of that money going to AMD to purchase its share. In addition, the new entity would take over $1.2 billion in AMD debt.

Over the next five years, ATIC has committed to spending from $3.6 billion to $6 billion to expand and improve the new company's chip-making capacity, which also could be used to make processors for other companies besides AMD. In doing so, the company would become a competitor of a host of manufacturers, many in Asia, that build processors designed by other firms.

The agreement also has Mubadala Development, owned in part by the Abu Dhabi government, increasing its stake of AMD to 19.3% from 8.1% with the purchase of an additional 58 million shares and warrants for 30 million more for $314 million.

AMD has been working on its breakup, which the company called its "Asset Smart" strategy, for more than a year. The initiative was an answer to Wall Street's demands for radical change to reverse the company's losses, much of which was attributed to competing against Intel and paying off the huge debt incurred with the 2006 acquisition of graphics chipmaker ATI Technologies.

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