AMD to Take Charge on ATI Deal

AMD is said to have paid too much for the graphics chip maker.

SAN FRANCISCO, Dec 12 (Reuters)—Microchip maker Advanced Micro Devices Inc said on Wednesday it plans to take a material write-down of the value of its 2006 acquisition of ATI Technologies, a pricey bet the company made to compete better in the market for graphics semiconductors.

AMD, which has struggled in the last two years with market share losses and delays of its Barcelona server chip, holds its analyst meeting in New York on Thursday. It has reported four straight quarters of losses amid renewed competition from its far larger rival Intel Corp.

Sunnyvale, California-based AMD last month announced a new line of graphics chips to be used in personal computers that have as many as four accelerator cards.

The company said in a regulatory filing that the goodwill impairment charge would be material, but it could not estimate the amount. It said it would make a further filing once it determined the amount of the charge.

"Now we know for a fact that AMD overpaid for ATI, they certainly did not do the due diligence required and did not understand the graphics market as it was at the time of the acquisition," said Raymond James & Associates analyst Hans Mosesmann.

AMD, the worlds No. 2 supplier of computer processors, completed its $5.6 billion purchase of Canadian graphics chipmaker ATI Technologies in October 2006.

Two months ago, AMD reported a quarterly loss of $396 million, including charges of $120 million related to the ATI acquisition.

Analysts have said that the ATI acquisition would drag on AMD in the short-term, but if the company executed well on integrating the purchase, it could likely be beneficial over the longer term.

AMD last month launched a new graphics chip called FireStream that is modified to crunch vast amounts of data, with potential customers in the financial, engineering and scientific industries.

FireStream is AMDs answer to a similar initiative from rival Nvidia Corp this year to find broader markets for increasingly powerful graphics chips.

FireStream is also a stepping stone for AMD to a major company product called Fusion that aims to combine a graphics chip on the same piece of silicon as a central processor by early 2009, a development that could lead to better performing notebook personal computers.

Even so, AMD is at a substantial disadvantage to Nvidia, and will not be able to keep pace in research and development spending on graphics processors, Mosesmann said.

He said that Nvidia spends at least $500 million per year on research and development on graphics processors, known as GPUs, alone—far more than the $200 million or so AMD might be able to budget.

"AMD is going to have to make a stand and that stand is in one area, which is in microprocessors," Mosesmann said. "Its not going to be in graphics."

Shares of AMD fell 2 percent, or 18 cents, to $8.89 and shares of Intel rose 1.2 percent, or 32 cents, to $27.25. Shares of AMD trade at about 0.7 times its 2008 forecasted revenue, according to Reuters Estimates, while those of Intel trade at 3.9 times forecasted 2008 revenue. (Additional reporting by Bill Rigby in New York, editing by Gerald E. McCormick, Gary Hill)