AMD - The Blanche DuBois of the chip industry?

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Blanche DuBois uttered a great line in the play “A Streetcar Named Desire”:

‘I’ve always depended on the kindness of strangers’.

The same could be said of AMD.

AMD’s business history is a roller coaster of good and bad years – one indication of the highs and lows are reflected in its stock price history:

  • Jan 2 1989 closing price: $4.50
  • April 3 2000 closing price: $43.75
  • Jan 1 2003  closing price: $5.24
  • Jan 2 2006 closing price: $41.80
  • Current price: $1.99

Currently there are about 16,000 employees, although this is declining as market conditions deteriorate. However, AMD has played the “jobs card” quite well in securing subsidized financing, first for the Dresden fab and currently for a fab plant in upstate New York State:

“Current plans call for a total investment of approximately DM3 billion ($1.76 billion) through the year 2006 [in the Dresden fab plant]. AMD will contribute resources totaling DM550 million ($322 million). German governmental support adds up to DM800 million ($469 million) supplemented by an indemnity bond to partially secure the loan.”

Source: findarticles.com

“The amount of money put into Dresden will amount to $8 billion with this announcement [to expand Dresden plant], and AMD has the backing of Saxony, which is interested in creating more jobs in the region.

Hans Deppe, MD of AMD Dresden, said the investment of more money into its fab facilities in Germany mean that jobs will be secured until well into the next decade.”

Source: The Inquirer

AMD has asked the Saratoga County Industrial Development Agency (IDA) for $27.8 million in sales tax exemptions. The deal would supplement the $1.2 billion AMD has already negotiated for itself in state incentives for the firm’s planned $4.66 billion chip fab in the area…The fab … would employ 1465 souls and have an annual payroll of about $88 million, or about $60,000 per job when it gets up and running in about 2012.”

There are also an expected 5,000 secondary jobs as a result of the NY fab plant.

Arrangements such as this are not uncommon and taking advantage of government subsidies is a no-brainer. The quid-pro-quo of subsidies for jobs and economic development also makes local governments a key stake holder for AMD – and it’s in their interests to ensure that AMD keeps on trucking.

Add to this mix the latest deal with the Advanced Technology Investment Company (ATIC) of Abu Dhabi to create a new entity called The Foundry Company which becomes a captive supplier for AMD’s chip needs:

“AMD will contribute to The Foundry Company its manufacturing facilities, including two fabrication facilities in Dresden, Germany, as well as related assets and intellectual property rights. ATIC will invest $2.1 billion to purchase its stake in The Foundry Company, of which it will invest $1.4 billion directly in the new entity and the remainder will be paid to AMD to purchase additional shares in The Foundry Company. The Foundry Company will also assume approximately $1.2 billion of AMD’s existing debt. ATIC has committed additional equity funding to The Foundry Company of a minimum of $3.6 billion and up to $6.0 billion over the next five years to fund the expansion of The Foundry Company’s chip-making capacity beyond the manufacturing facilities initially contributed by AMD.”

Source: bit-tech.net

Abu Dhabi sits on a sliver of land about the size of West Virginia and takes in something like $100 billion/yr in oil revenues (although this is declining rapidly as oil prices tank). When you have this much money, gambling a billion here or there is like playing with Monopoly money. For example:

“The next thing Abu Dhabi needed was a landmark. The answer was the $3 billion Emirates Palace hotel, with its $1,000-a-night rooms and $10,000 suites. It was Abu Dhabi’s bid to outdo Dubai’s Burj Al Arab, the $1 billion sail-shaped hotel that has become a tourist attraction. The plan worked: While the Emirates Palace doesn’t seem to have many guests, it does have gawking European tourists.”

Source: CNN.com

I find it interesting that the penurious pencil pushers among the vulture capital community have not been banging on AMD’s doors to buy in – could be AMD’s outlook has something to do with it:

“In a report to its clients this week, Citigroup Global Markets said Intel’s recent progress in improving its chip technology will probably make it hard for AMD to steal business away from its bigger rival, which controls about 80 percent of the high-end chip market.

Investment bank FBR Capital Markets agreed in a note to its clients. It said Intel should be able to maintain its semiconductor-technology edge over AMD through next year with Intel’s new chip, dubbed Nehalem, “leaving AMD to fight Intel mainly via price cuts.”

Moreover, whereas AMD will still be in debt even after the Abu Dhabi deal is finalized, Intel is in such good shape financially it is well positioned to weather a worsening economy “by buying weaker competitors, accelerating product development efforts, or buying back meaningful amounts of stock,” according to the FBR report.”

Source: ContentAgenda

“AMD’s share of the processor market continues to plummet as the beleaguered chip maker is just not able to arrest the slide. AMD’s market share in the third quarter stood at 17.7 percent, down 1.1 percent from the previous quarter, according to a report by Mercury Research. AMD has ceded more than one-fourth of the market it held a year ago – its market share was 23 percent a year ago.”

Source: MaximumPC

“‘AMD’s share decline was essentially due to their comparatively weaker mobile mix – the market moved strongly to mobile, and Intel having a larger share and mix benefited more, diluting AMD’s position,’ Mercury Research analyst Dean McCarron told PC Magazine. The translation: AMD needs a much stronger mobile product line to stop the bleeding.”

Source: tgdaily

So here’s the picture:

AMD’s market share is plummeting, chipzilla has resources far superior to AMD, AMD basically opts out of the netbook market and to survive, AMD’s latest gambit is to sell off pieces of itself to dollar-rich Abu Dhabi.

What happens when you run out of friends? I’ll let readers draw their own conclusions.

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