AMD Memory Spin-Off Clears The Decks For Growth

Advanced Micro Devices Inc.'s spin-off of its flash memory business into a company called Spansion Inc., which had its initial public offering on Friday, will help the chipmaker tighten its focus on microprocessors for PCs and servers and improving its bottom line.

Spansion on Friday offered 42.2 million shares of its Class A common stock at $12 per share. AMD has planned for two years to spin-out the flash memory business, which accounts for about $2 billion in annual revenue, but has been a drag on profits. Through the first nine months of 2005, AMD's memory product business had revenue of $1.4 billion, but an operating loss of $249 million.

In an interview with InformationWeek in October, Hector Ruiz, chairman, president, and chief executive of AMD, acknowledged that the "flash market has went through a very difficult time, but it is beginning to recover. It will take some time to get back to where it used to be, and it has had a big impact on our company revenue because it's been a big part of it. We will become basically a microprocessor company "

The spin-out of the flash memory business will lower AMD's total revenues by more than a third. But while AMD's flash memory revenue has been declining over the past year, its microprocessor revenue has been increasing by more than 35% in 2005 versus 2004.

The bulk of AMD revenue comes from its Computation Products division, which includes its microprocessors, which have totaled $2.5 billion through the first nine months of the year, and had an operating income $410 million. Overall, through the first nine months of 2005, AMD has reported net income of $70 million on revenue of $4 billion.

AMD is retaining a 40% interest in Spansion, and memory partner Fujitsu will hold a 20% interest.