ft.com
No long sentences to confuse people here, just facts. What we know…
The Foundry Company
New manufacturing company
44.4% stake held by AMD
55.6% stake held by ATIC valued @ $700M (Abu Dhabi’s Advanced Technology Investment Company)
ATIC will add 1.4B in funds to the company with promise of $3.6 – $6B in investment in new facilities over 5 years.
$1.2B of AMD’s debt will be transfered (AMD debt is approx $5B).
Acquire Dresen fabs.
Plan to spend $3.2B on NYC fab.
AMD
$1.2B of debt transfered to TFC leaving approx $3.8B
Investment of $314M increasing stake to 19.4%
$700M from the TFC deal
No fabs
Huge loss of hard assets
No burden from fabs
So what has happened here? Basically a lot of strain has been taken off AMD but now they are effectively the same as Nvidia. They are a design company. The thing is if you are going to do this why would you want to use AMD’s laclustre manufacturing process? Why not just use TSMC?
This brings up the issue of the cross licensing agreement with Intel. How will this deal satisfy the requirements of the cross licensing agreement? I mean if it does then why not just outsource to TSMC?
Big investment also brings up a few other issues. AMD is currently allianced with other companies, IBM and Toshiba to name two big ones. Will these companies be so willing to keep the alliances they have made? Will they expect more from AMD now? The idea of this alliance is to cut costs. With AMD’s investors having cash falling out of their backsides I can see the others wanting a bit more in terms of investment from AMD. I have the feeling they have been getting what is almost a free ride on the back of IBM lately. AMD only made chips for itself before. If they are going to become a foundry they also become competition.
Another problem that is overlooked is the overhead associated with out sourcing. Assuming TFC will be a complete seperate entity from AMD the two companies will have to work together as seperate entities. This will add time delay to development. If this isn’t the case then I don’t see why the company was split since to me it would imply the company is just two logical units but still one physical unit. TFC wants to be a foundry though so once other orders come in AMD may not get the priority over fabs they are used to.
The issue for investors is dilution. AMD is now heavily diluted and 20% is owned by Abu Dhabi. They will have approx 660M shares outstanding once this deal goes through. That’s about 50% dilution since 2005 (approx 430M shares in 2005).
Lastly here’s a comment from Dirk. I never understand comments like this though
Dirk Meyer, AMD chief executive, said the move allowed the group to maintain access to leading-edge technologies without having to make the capital-intensive investments of semiconductor manufacturing.
Someone still has to manufacturing the chips and maintain fabs etc. The costs are still there, just not directly on AMD’s balance sheet. Is Dirk saying that TFC is just being made to be a huge corporate loss machine for AMD? AMD may get good prices however both companies will be striving to have balance sheets in the black.