Class action suit against AMD about false Llano claims gets greenlighted

AMD landed itself in hot water by making misleading claims about the yields and availability of its Llano APU and must now defend itself in a class action lawsuit.

Last year a group of investors filed a class action lawsuit against AMD, accusing the firm of securities fraud and inflating its stock price by not only withholding information but also making false statements about demand and supply of its Llano APU.

Once touted to be the most impressive processor in history, Llano suffered multiple delays and suffered supply constraints throughout 2011, despite reassuring claims from AMD that nothing was amiss and that production issues at Globalfoundries had been resolved.

The suit alleges AMD hid the truth about the poor production yields at Globalfoundries and further mislead investors by claiming Llano experienced high customer adoption and high sales volume. By the time AMD was able to produce Llano in large volume, market demand had dwindled and the firm eventually had to take a $100 million writedown on its unsold inventory.

Reuters writes a judge reviewed the case and ruled that the evidence presented by the plaintiffs meets the legal requirements, meaning AMD must face claims that it committed securities fraud. The court denied AMD's motion to dismiss, arguing AMD will have to explain itself why it might have stated that yields were on track when they were later exposed as not having been.

Explanations that perhaps GlobalFoundries lacked knowledge or concealed these facts of persistent yield difficulties are deemed to be unlikely as AMD, and in particular Seifert and Read, were informed on a weekly basis about details concerning Llano supply and customer demand. Multiple witnesses confirm AMD and GlobalFoundries devoted considerable resources to fix the Llano problem and the court document reveals there's strong evidence to suggest AMD knew that their statements that the yield was on target as of April 2011 were false when made.

Originally set for product launch in the fourth quarter of 2010, sales of the Llano were delayed because of problems at the company's chip manufacturing plant, the lawsuit said.

The lawsuit said Advance Micro's then-Chief Financial Officer Thomas Seifert told analysts on an April 2011 conference call that problems with chip production for the Llano were in the past, and that the company would have ample product for a launch in the second quarter.

Advanced Micro officials continued to state that there were no problems with supply, concealing the fact that it was only shipping Llanos to top-tier computer manufacturers because of supply constraints, the lawsuit said.

By the time Advanced Micro was ready to ramp up shipments in late 2011, demand had dwindled, leading to an inventory glut, the lawsuit said. Advanced Micro eventually disclosed in October 2012 that it was writing down $100 million of Llano inventory as not salable, the lawsuit said.

The plaintiffs seek compensatory damages as well as compensation for costs and expenses incurred in this action. The lead plaintiffs are the Arkansas Teacher Retirement System and Belgian institutional investor KBC Asset Management.