AMD Will Take $900M Q2 Charge

Advanced Micro Devices is looking to shoulder more than $900 million in charges related to its acquisition of ATI when it announces its second-quarter financial results July 17.

In a filing with the U.S. Securities and Exchange Commission July 11, AMD disclosed that would it take an $880 million charge that related to the Consumer Electronics division of ATI. In the letter, AMD specifically referred to that division's handheld and digital television units as significantly underperforming.

AMD will also take a $32 million writedown related to the layoffs the chip maker announced earlier in 2008. Finally, the company is taking a $36 million hit due to some of its investments, including its investment in Spansion, which develops flash memory.

In the SEC filing, AMD said it plans to offset these costs by selling some of its 200-millimeter wafer equipment from its fabs for a total of $190 million. However, AMD did not detail if it plans to close its fabs or develop more manufacturing partnerships as part of its "asset smart" strategy.

Ross Seymore, an analyst with Deutsche Bank, wrote that the numbers AMD detailed in the filing are significant but will not change the company's overall financial fundamentals.

"AMD is taking several one-time charges, but we believe they do little to change the fundamentals of the company," Seymore wrote in the research note. "AMD will take an additional $880 million impairment charge related to the ATI acquisition. This brings the total impairment charges related to ATI to approximately $2.2 billion or more than 40 percent of the original $5.4 billion acquisition price."

In 2006, AMD completed its over-$5 billion deal for ATI. After that announcement, AMD began formulating significant plans for the graphics technology that ATI would bring into the company. In the coming years, AMD plans to combine CPUs and GPUs (graphics processing units) within the same piece of silicon, which the chip maker calls Accelerated Computing.

However, AMD has been struggling with the debt it created by buying ATI and AMD's ongoing financial losses are directly related to the acquisition.

This has led to AMD announcing that it would eliminate 10 percent of its 16,500-person work force and eventually target those parts of its business that it believes are underperforming. With the July 11 SEC filing, it seems clear that ATI Consumer Electronics division will be spun off into a new business or sold to another company.

Even with its financial issues, AMD has managed to gain back some market share in terms of revenue, according to iSuppli. Those gains can be traced back to company finally delivering its quad-core Opteron processors into the market for desktops, servers and workstations.

AMD also launched Puma, its new mobile platform for laptops, in June, which should allow the company to target small and midsize business customers as well as back-to-school sales. Later in 2008, AMD will roll out the first of its 45-nanometer processors—"Shanghai"—which will allow AMD to place more processors on each wafer, which should help reduce costs.