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Is AMD its own worst enemy?

Posted on Saturday, April 26 2008 @ 18:44:43 CEST by

Therese Poletti from MarketWatch has published a commentary on AMD and says the chip maker may have shot itself in the foot with the ill-timed acquisition of ATI.
But even with an additional graphics product in the mix, AMD's computing solutions business fell 12% to $4.7 billion in 2007, down from $5.4 billion in 2006, due to a drop in average selling prices amid a tough price war and more competitive products from Intel. So even though AMD was shipping more units, its average selling prices were falling.

The business of semiconductors is a cash-intensive one that requires huge fixed costs to keep a company's massive chip-making plants running. AMD is a rare U.S. chipmaker that also owns and operates some of its own manufacturing plants, even though it has been talking about embarking on an "asset light" strategy for many months (whatever that means).

But as a result of the debt AMD incurred to buy ATI, the company now is even more highly leveraged with $5.1 billion in debt, some associated with the ATI acquisition, which was part cash and part stock, and its big manufacturing plants.

Large amounts of debt overhanging a balance sheet for a semiconductor company are not typically a good thing. The company has to service its debt payments with its free cash flow and has less to spend on research and development, where Intel has lately been pushing the envelope. Intel is on a roll with a flood of new products and it reached the next generation of manufacturing processes much sooner than AMD.
Read more over here.



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