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AMD struggling to survive

Posted on Thursday, July 10 2008 @ 20:21:50 CEST by

Fears over AMD's future and weakening demand have pushed the firm's stock to a new 16-year low. AMD is now worth only 2.97 billion on the stock market - that's only 55% of what it paid to acquire ATI in 2006.
AMD might be running out of options. The company has already sold an 8.1 percent chunk of itself to the Abu Dhabi government last September, but with a dramatically shrinking cap-ex budget, AMD appears unable to spend its way out of this mess. Some will say that AMD's problems stemmed from its acquisition of graphics chip maker ATI Technologies a couple of years ago for what was then thought to be a heavily inflated $5.4 billion. AMD had enormous trouble trying to digest that deal and now its value almost twice AMD's dwindling market cap. Ouch.

This is a company literally fighting for its life, and it needs to survive. Consumers, business customers, the marketplace as a whole need this company to survive. Intel is a well-oiled, money-making machine, but as the only game in town, it runs the risk of being a monopolist in more than just "name only." AMD has made the argument, sometimes compelling, sometimes not, that Intel has spent decades exercising that monopoly power.

There may be some fire under all that smoke, but in the meantime the industry still has two competitors. If Ruiz and team can't figure out a way to strengthen AMD, after so much time trying, they should step aside and make way for a team that can. More is at stake here than merely the survival of AMD as a company; chip industry competition depends on it.
AMD has $5 billion of debt hanging above its head and is expected to announce its seventh straight quarterly loss next week. The company is in a deep mess and the current financial and economic climate is making it a lot harder to pull out of it.

Investors are worried because AMD is falling behind, the firm is cutting R&D and doesn't have enough money to keep its plants and equipment up to date while rival Intel is spending $11.2 billion this year in new plants, equipment, research and design. Bloomberg reports AMD's spending in 2009 may be limited to $600 million and suggests the firm may need to sell a large stake to an outsider or sell factories and outsource production.
Chief Executive Officer Hector Ruiz, after a year of searching for a way out of the company's cash squeeze, has few options left, given the weakness in AMD stock and credit-market tightening. He may have to offer a large stake to an outsider, which at today's prices would be worth 33 percent less than at the beginning of the year. Or Ruiz might sell AMD's two factories and outsource production.

``They've escaped in the past, but they've never had to face this debt load,'' said Lee, in Montpelier, Vermont. ``It's only going to get tougher because Intel has many more resources.''

In an industry where Intel Corp., the leading company, spends a quarter of its revenue on product development and new plants, AMD is falling further behind.

AMD's capital budget of $1.1 billion this year is the lowest since 2003, and next year's spending may be limited to the $600 million the Sunnyvale, California-based company generates in operating cash flow, estimates Doug Freedman, an analyst at American Technology Research in San Francisco.


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Re: AMD struggling to survive
by Anonymous on Thursday, July 10 2008 @ 22:35:59 CEST
I wouldn't be surprised if they go bankrupt in 2009. In this market it's going to be very hard to raise cash for junk (the business, not the products) firms like AMD.


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