Significant Step to Correct Financial Woes
For AMD, the move to spin off its fabs is being seen as a significant step to help the company correct what has turned into a dire financial situation. AMD has sustained seven straights losing financial quarters and has piled on debt after its $5.6 billion acquisition of ATI in 2007. With the forming of the new company, AMD will push $1.2 billion off its books, and that debt will be assumed by The Foundry Company. In a research note, John Spooner, an analyst with Technology Business Research, wrote that he believes that by spinning off its manufacturing facilities, AMD will be able to concentrate of designing, engineering and marketing its processors and platforms for desktops, notebooks and servers.During their conference call, executives from AMD and ATIC detailed a long-term plan, which will include additional capital injections into the new company. In addition to the initial investment, ATIC is planning to pour as much as $6 billion into The Foundry Company during the next five years, which will help expand the two fabs in Dresden, including one facility that will produce 300-millimeter wafers, and begin the construction of a new facility in upstate New York. However, the rights and subsidies that New York state promised to AMD to build the new fab will now have to be transferred to The Foundry Company. The process to transfer those rights, according to company executives, will run in parallel to the establishment of The Foundry Company. In addition, Mubadala Development, another investment company owned by Abu Dhabi, will invest an additional $340 million in AMD. The government-backed investment company, which earlier invested in AMD, will now own 19.3 percent of the chip company. Editor's Note: This story was updated to include additoinal information about the "asset smart" plan.
"We believe that the chipmaker will become more competitive as it will be able to concentrate its resources on product design, allowing it to focus on delivering products that are consistently competitive with those of Intel," Spooner wrote. "A more competitive AMD product line will bring with it higher revenue and profitability for the chipmaker, reversing its recent string of unprofitable quarters."