Your stock price has dropped over 50% in the last four months, hitting a 52-week low, mostly because you’re going into a price war with the market leader, who is bringing in products for which the only answer you have are comments like, “It’s not about benchmarks . . . .”
You’re committed to spend billions of dollars to ramp up/revamp two fabs, and have a third on tap, just when your profits are almost certainly going to vanish for a while.
Most people would say anybody having to deal with all this already has a pretty full plate.
Apparently, not at AMD. To them, it’s just the right time to buy a company currently over half your size (and mainstream media is starting to report this), yet when you have your quarterly earnings report, don’t say anything about it! Wait until the next day!
Are the gods at Sunnyvale crazy? Just about every stock analyst who has considered this thinks so.
It’s not like ATI is a tremendous bargain at the moment; if anything, the price is a bit above average, and if rumors of a takeover bid of 20-40% more than the current stock price is accurate, the price would be downright high.
Nor would buying ATI be a bargain to AMD because its stock price is so high. Had this happened when AMD stock was at 40 (and ATI was somewhat cheaper), and AMD paid for ATI by issuing more stock, that would have made a lot more financial sense than it would now.
Nor does AMD have the cash on hand to buy; they have less than half the purchase price on hand.
ATI doesn’t have a big cash hoard, it’s not exceptionally profitable, there’s no noticeable financial reason why AMD needs to buy them now.
Nor is there any compelling technical reason to do so, now. Yes, in the long term, there could be some big benefits (especially if video gets intergrated into the CPU), but you don’t have to buy the company this instant when you’re in a disadvantageous financial situation and up to your neck in sharks at the moment.
Going Out of Focus To Keep Others Focused
Look, odds are AMD is going to lose money next quarter. Probably not a huge amount, certainly not enough to endanger the company financially, but the financial markets dropped AMD’s price 15% just because their profits came up a little short. They’re not going to take a loss too well.
More importantly, from the strategic side, it’s hard to see how AMD can credibly make an claim to continued big momentum when Intel can smack them into a loss with a few price cuts.
Unless you come up with other things to show momentum. It can be little things, like lots of ads in the business magazines, or even trivail, like putting up lots of little banners on light poles for some tech show in the Wall St. area with your logo on them and “forget” to take them down.
And it can be big things, too, like making what sounds to be a committment to build a fab in the same state as Wall Street. Or buying a tech firm people have actually heard of.
Little or big, what these moves all serve to do is to give the impression of continued momentum while have no or at least little short-term impact on the real vital signs of the company.
In contrast, getting Dell as a serious partner would have been a real biggie (and of considerably more interest to the financial types), but if you read between the lines in the AMD conference call, it sounded like Dell wanted too good a deal for AMD chips, and they backed off.
Conclusion?
This is either just talk, or if it is serious, and we hear about this Monday, I think AMD is going to have a very hard time selling this to the hard-nosed beancounters (which includes the not-too-happy-at-the-moment shareholders
Doing it now just doesn’t seem to make a whole lot of sense.
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