Playing Chicken

TGDaily reports that AMD has taken some preliminary steps needed before a fab could be built in New York State.

That’s nice, but one shouldn’t treat this as a big deal. Filing permits and clearing land aren’t big expenses, and even if AMD is using the prospect of a New York State fab as a bargaining chip, they’d have to do these things around now to continue to look serious about building a NYS fab.

The big question, of course, was, is and will be, “How could AMD pay for this?” They certainly can’t pay for it out of profits, and borrowing a few billion more seems unlikely at a time for a company that owes over five billion dollars, yet is valued at only four billion by the stock market.

So what are they up to? I see one of two possibilities.

The “Annie” Scenario: Things look bad now, but keep singing and dancing, and maybe the sun will come up tomorrow, or at least Daddy Warbucks will show up.

You might say that this is no way to run a multinational corporation, but that’s pretty much the corporate culture at Green: lots of singing and dancing and lots of hope and belief in luck.

The “Get Adopted By IBM” Scenario: This is very much like the Annie Scenario, except AMD Annie has found Daddy Warbucks, and his first name is IBM.

By “adopted,” I don’t mean IBM is going to buy AMD or anything like that. I mean IBM will in some way get involved in the financing and construction of the New York State fab.

Given that IBM is going to need a 32nm and below fab anyway and given that AMD would be the biggest customer in any 32nm consortium, there’s a business case to be made for this.

Of course, AMD’s idea of a good deal and IBM’s idea of a good deal probably differ quite a bit, which is why this isn’t a done deal. There’s probably some talks going on, how serious they are is another story. You probably shouldn’t take this all too seriously until you start hearing stories based on IBM sources on an upcoming deal.

Let’s face it, if AMD could tell the world that IBM is going to watch its back, they wouldn’t keep that a secret. They’d tell the world nanoseconds after a done deal. The fact that they haven’t done anything but drop a hint here, an insinuation there seems to indicate the opposite.

Then again, the total picture is probably much, much more complicated than just a two-company deal. To grossly oversimplify, IBM and any other interested parties may want to see what the European Commission tries to do to Intel. AMD will look a lot more desirable if the EC tries to rip Intel a new one than if it slaps the company on the wrist. AMD might not need IBM at all should that happen, even a preliminary ruling might persuade some investors/lenders to take a chance of them.

That may be what Little Orphan Hector is really hoping tomorrow will bring, not IBM Warbucks, but EC Warbucks.

And that’s the problem with judging AMD. If you look at their core financial situation based on what we know, things look pretty bad, very bad. They’ve fallen and they can’t get up . . . by themselves.

Will outside forces help them up? That we don’t, and maybe even can’t at this point know, nor can we even estimate how likely it is that will happen.


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