AMD sells 85 percent stake in assembly and testing facilities to NFME

AMD announced it's shedding more assets as it has entered an assembly, test, mark, and pack (ATMP) facilities joint-venture with Nantong Fujitsu Microelectronics (NFME). Under the deal, AMD sells an 85 percent stake in its ATMP facilities in exchange for a cash payment of $371 million ($320 million net after expenses).

The assembly and test manufacturing facilities from AMD are located in Penang, Malaysia and Suzhou, China and have a workforce of around 1,700 employees and management team. These two facilities will be combined with NFME's established outsourced semiconductor assembly and test (OSAT) expertise, resulting in a joint-venture with five facilities and 5,800 employees. The deal is expected to close in the first half of 2016.

The move provides increasingly asset-light AMD with a cash infusion and promises to significantly reduce the firm's capital expenditures. CFO Devinder Kumar explained the deal with cut AMD's capex by about $60 million a year, and said the deal will be cost-neutral, it should not result in higher packaging costs. This will enable AMD to dedicate more resources to chip design, but gives it even less control over the production of its chips.

AMD (NASDAQ: AMD) and Nantong Fujitsu Microelectronics Co., Ltd (NFME) (SZSE: TFWD) today announced the signing of a definitive agreement to create a joint venture combining AMD's high-volume assembly, test, mark, and pack (ATMP) facilities and experienced workforce in Penang, Malaysia and Suzhou, China with NFME's established outsourced semiconductor assembly and test (OSAT) expertise. Upon close, the new business will leverage the capabilities of 5 facilities and approximately 5,800 employees to offer differentiated ATMP capabilities and scale to service a broad range of customers. The transaction is expected to close in the first half of 2016, pending successful completion of regulatory approvals.

"We continue our strategic transformation by creating a joint venture combining AMD's high-volume assembly, test and packaging facilities and our experienced workforce with NFME's expertise in outsourced semiconductor assembly and testing," said AMD Senior Vice President, Chief Financial Officer and Treasurer Devinder Kumar. "NFME is an ideal partner with the vision and business plan to successfully lead the joint venture upon the close of the transaction. We continue to sharpen the focus of our ongoing investments on designing differentiated, high performance technologies and products that can drive long term profitable growth. The formation of this JV further strengthens our balance sheet with significant asset monetization."

Shi Lei, the general manager of NFME, said, "AMD has world-class advanced assembly and testing facilities and a rich history of high-volume production. AMD's technology and expertise is very complementary to our current capabilities. The newly-formed JV will improve NFME's R&D capability and enhance our corporate reputation worldwide. The JV will also strengthen our opportunities to further move into international markets and secure additional customers as a part of our plans to become one of the world's leading assembly and testing companies."

The joint venture marks another step in AMD's strategic plan to sharpen its focus on building great products while enhancing the company's supply chain operations in the long run by providing additional scale and strengthening its balance sheet through a cash infusion and reduced capital expenditures aligned with a fabless business model.

The joint venture is well positioned to take advantage of the increasing demand for semiconductor assembly and test services (SATS). According to Gartner Research, the SATS market revenue is expected to be $27.4 billion for 2015, with growth of 1.1 percent. The 2014 through 2019 CAGR for the market is forecast to be 4.6 percent, leading to approximately $34 billion in total estimated market revenue by 2019.

Key highlights of the definitive agreement include:

AMD will contribute to the joint venture:
- ATMP facilities in Penang, Malaysia and Suzhou, China
- Approximately 1,700 employees -- including the site leadership teams which will continue to provide management and oversight

NFME will purchase an 85 percent share of AMD's Penang and Suzhou operations, and serve as controlling partner for the new combined business.

As consideration for the transaction, at close AMD expects to receive approximately $371 million from NFME, record cash of $320 million, net of expenses, and retain 15 percent ownership of its Penang and Suzhou operations.

Post close, AMD expects the transaction to be cost neutral with significantly reduced AMD capital expenditures.

There are no planned workforce reductions at AMD's Penang or Suzhou facilities in conjunction with the creation of the joint venture.

J.P. Morgan Securities LLC served as exclusive financial advisor to AMD, and provided a fairness opinion to the board of directors of AMD.