Updated: AMD and Broadcom announced a deal that will allow Broadcom to buy AMDs Digital Television (DTV) business for $192.8 million. AMD first acquired the Digital Television division when it bought ATI in 2006, but the division had been underperforming and AMD shut the division down earlier this year to avoid additional financial losses. The deal is expected to strengthen Broadcoms digital television offering and allow AMD to concentrate on its core processor business.Advanced Micro Devices has agreed to sell its underperforming
Digital Television (DTV) business to Broadcom for $192.8 million, the
two companies announced Aug. 25.
The deal, which is expected to close sometime in the fourth quarter of 2008, is a significant step forward for AMD,
which has suffered through seven straight losing financial quarters and
has been looking for buyers for its underperforming Consumer
Electronics group for months.
When AMD bought ATI in 2006 for $5.6 billion, it inherited the
graphic makers consumer electronics division, which has underperformed
for AMD since it completed the deal. Just before AMD announced its
second-quarter financial results in July, the company announced it
would take an $880 million write down related to the ATI acquisition
and then AMD essentially shutdown the consumer electronics division.
The Broadcom deal now allows AMD to move the ATI DTV business off
its balance sheet, which should help with the chip makers financial
recovery.
The DTV business sell-off also makes good a promise that AMD would
refocus its energy on its core x86 processor and graphics business, which new CEO Dirk Meyer announced when he took over the company in July from Hector Ruiz.
The sale of our DTV business is a key step in AMDs transformation,
helping to strengthen our balance sheet, lower our breakeven point, and
hone our focus in order to take full advantage of our position as a
leader in both microprocessors and graphics technology, Meyer said in
a statement released after the Broadcom announcement.
John Spooner, an analyst with Technology Business Research, said the
sale of the DTV business will have an immediate impact on AMD by adding
much needed cash into AMDs coffers. It will also allow AMD to cut
expenses by reducing the companys overall headcount by about 500
employees and reduce any money spent on research and development. In
the long term, the sale puts AMD on track to return to its roots as a
producer of x86 processors for servers and PCs as well as a supplier of
GPU (graphics processor unit) technology.
This is something that will really let them focus on their core PC
and graphics business, Spooner said. Thats what the executives
talked about earlier this year. With the digital television business,
the guys would come up with cool products and then they would have to
go out and find a market to sell these products into. It was a good
business, but it was peripheral to what AMD wanted to get done. Now,
this gets them more focused on PCs and servers.
In addition to the DTV business, AMD is also looking for a buyer for
the mobile handset division that also belonged to the ATI Consumer
Electronics division. A third part of the electronics division, which
involved graphics technology for game consoles, has already been
absorbed into the main ATI graphics division.
The agreement to sell the DTV business can also be seen as a
strategic move in anticipation of AMDs asset smart or asset lite
strategy. While not directly related to the sale, the "asset smart"
plkan has been rumored for months but remains a closely guarded AMD
secret that Ruiz said he would focus on as chairman of AMDs board,
while Meyer runs the day-to-day operations. Although
AMD has said little about asset-smart, industry watchers and analysts
believe that AMD will sell off its manufacturing facilities or fabs and that Ruiz will head up this new venture.
For Broadcom, the acquisition of AMDs DTV business means that the
company can further expand its research into home entertainment and
digital television technology. The deal will allow Broadcom to tap into
processors, reference designs and integrated circuits for digital
televisions, television panels, home theater systems and digital
speakers.
The acquisition of AMD's DTV business, which will become the core
of Broadcom's DTV line of business, will enable us to significantly
scale and accelerate the completion of our digital TV product portfolio
while also expanding our tier-one customer base and positions us to
achieve leadership and long-term growth in this important market
segment, Broadcom Senior Vice President Daniel Marotta, said in a
statement.
What is less clear is what will happen to the 530 employees of the
AMD DTV business. In the statement, Broadcom and AMD announced that
these employees will be invited to join the new Broadcom division.
Since its financial fortunes have declined, AMD announced that it would eliminate about 10 percent of its 16,500 employees.
Although AMD has struggled in the last year, several of the
companys top spokesmen set up shop outside the 2008 Intel Developer
Forum earlier this month to tout the companys upcoming line of
processors and its graphics. Just before IDF, AMD announced that it would use its 45-nanometer Shanghai processor to compete against Intels Nehalem chip in the two- and four-socket server space and that it will have a new server platform hit the market by 2009.
Doug Freedman, an analyst with Amercian Technology Research, wrote
in an Aug. 25 research note that AMD could have a Shanghai announcement
ready by the third quarter. AMD executives had said that the chip could
hit the market by the fourth quarter.
"We anticipate key product launches before the end of the current
[third quarter] for Shanghai server processors [making up for Barcelona
mis-steps]," Freedman wrote. "We expect Shanghai performance reports to
leak in the next week or so. While we don't expect top-of-the-pyramid
performance, we expect more than good enough for many mainstream server
and high-end desktop configurations."
Editor's note: This article was updated to include comments from analysts.
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