Update Tuesday 4:12 a.m. PDT: AMD has made the official announcement of the manufacturing spin-off.
On Tuesday, Advanced Micro Devices will announce a long-expected restructuring, according to sources familiar with the deal.
As expected, the No. 2 supplier of PC processors will split into two companies: one for designing chips, the other for manufacturing them. The capital-intensive business of manufacturing chips is weighing on AMD as it reels under a $5 billion debt load.
The investment is expected to allow AMD to remain directly involved in chip manufacturing--crucial for competing with Intel, which has used its manufacturing prowess to great advantage.
AMD would not comment Monday.
The company has secured about $5.7 billion of "confirmed, pledged investment," with some of the money earmarked for a future manufacturing facility in Malta, New York, according to sources.
AMD will own part of the new manufacturing entity, for the time being to be called The Foundry Company, while Advanced Technology Investment Co. (ATIC) will own the rest. One of the investors, Abu Dhabi-based Mubadala Development Co., invested approximately $622 million in AMD last November.
Mubadala already holds an 8.1 percent stake in AMD. Upon closing the deal, Mubadala will own 19.3 percent of AMD, according to sources.
ATIC--also based in Abu Dhabi--will have equal voting rights with AMD in The Foundry Company and own 55.6 percent of the new entity. ATIC will invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD, according to sources close to the deal.
In addition, ATIC will commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden, Germany, and construction of a new facility in upstate New York, near the town of Malta.
Mubadala, for its part, will purchase 58 million newly issued AMD shares valued at $314 million and warrants for 30 million additional shares, giving it a total stake in AMD of approximately 19.3 percent on a fully diluted basis, sources said.
Mubadala will also have the right to designate a representative for election as a member of the board of directors of AMD.
All of this is expected to greatly improve AMD's liquidity.
AMD CEO Dirk Meyer and other company executives are expected to make the announcement Tuesday.
The investment is characterized by one source as coming from investors with "a long-term vision, who want to help (AMD) scale the foundry operations to compete globally." A foundry is a manufacturing facility.
AMD has been laboring for months over details of the restructuring, which it has termed "Asset Smart." AMD Chief Financial Officer Bob Rivet said during AMD's second-quarter earnings conference call that Asset Smart would be "a major reformation of the company."
Also, at that time, AMD announced that Meyer would take over as CEO and Hector Ruiz would relinquish that post but remain as chairman to oversee AMD's transition to Asset Smart.
AMD already has a relationship with IBM in which AMD uses IBM's advanced test manufacturing facilities.
Advanced Micro Devices chip plant spin-off rumors won't die. Probably because they may be partially--or more than partially--true.
AMD Dresden facility to be spun off?
(Credit: AMD)But the timing is the big unknown. AMD claims the launch of its so-called Asset Smart strategy is not imminent.
The latest rumor was triggered by a blog at the Austin American Statesman that said AMD may "spin-off of its manufacturing operations within two weeks." The blog cites a Wall Street securities analyst, John Lau with Jefferies & Co.
AMD said that's not so. "We hope to get it done by the end of the year. There's been no change on our end," said Drew Prairie, an AMD spokesman.
"I wouldn't expect an urgent phone call from me in the next two weeks," he said, implying that the timing would not be in this time frame.
AMD has two chip factories in Dresden, Germany, that are at the center of the spin-off speculation.
Prairie also cautioned that speculation about the structuring of the spin-off may not be accurate. "I wouldn't take that assumption from (analysts) as definitive. There's a lot of nuances and gray areas, as to what we're going to be doing. A lot the speculation is painting things as black and white. I don't think, come announcement day, it will be that black and white."
He also reiterated that the proposed chip plant in upstate New York "would be a critical part of our manufacturing."
Analysts have also speculated that AMD may receive funding along the lines of the $622 million investment AMD received from Mubadala Development Co., the investment arm of the Abu Dhabi government.
IBM may play a small role in the Asset Smart strategy also. Currently, AMD and IBM do joint research and development on next-generation chip technology in a location close to the proposed AMD chip facility in Malta, N.Y.
Update on July 24, 5:50 p.m. PDT with additional information and corrections.
UPDATE: According to Kirk Ladendorf, the author of The Austin American-Statesman article, the Statesman will issue an update, likely sometime during the week of July 28. In short, it appears that AMD's contention that Dirk Meyer was misquoted is true.
Advanced Micro Devices will split into separate companies as it spins off its manufacturing operations, according to a report.
The Austin American-Statesman had one of the most unambiguous statements to date when it interviewed AMD's new CEO, Dirk Meyer, last week: "Meyer says the company is just months away from a major restructuring that will spin the manufacturing operations off into a separate company, with new ownership," the report said.
AMD spokesperson Drew Prairie says Meyer was misquoted, but did not give details on the company's future plans. He did say that "it's fundamentally important to AMD to transform how we manufacture our wafers."
One thing is clear: AMD has been laboring for months over the details of the restructuring. "We have made enormous progress. Certainly have an incredibly high level of expectation we will be able to do that before the end of the year," said AMD chairman Hector Ruiz--who stepped down as CEO last week--during the second quarter earnings conference call on July 17.
What may happen before the end of the year is a partial reorganization of the company rather than a clean spin-off of all manufacturing assets. But the basic import of the Statesman comment isn't necessarily inaccurate. AMD Chief Financial Officer Bob Rivet said during AMD's second-quarter earnings conference call that Asset Smart "will be a major reformation of the company." Asset Smart is AMD's terminology for the restructuring of its manufacturing operations.
"Part of the reason for the timing of the CEO transition...(is) we're just about at the goal line on Asset Smart," Prairie said. "It's at a point where it requires 100 percent of Hector's time and focus to see it through."
One of the biggest pieces of news that emerged from AMD's earnings announcement last week was that Meyer would become CEO and Ruiz would remain as chairman to oversee AMD's transition to Asset Smart. This arrangement has led to speculation that AMD would spin off the manufacturing part of the business. The question seems to be: How much of this would AMD retain?
AMD already has an Asset Smart relationship with IBM, Prairie said. "We have a very good relationship with IBM on the process technology side. That's one of the examples we have held out where we have gone Asset Smart in the past. Not having to have a 300 millimeter test facility on our books because we use their facilities."
However, Ashok Kumar, senior vice president at CRT Capital Group, said that one of the likeliest partners for AMD when it restructures manufacturing operations is Singapore-based Chartered Semiconductor Manufacturing. Taiwan Semiconductor Manufacturing Company (TSMC), which currently makes AMD's graphics processors, has also been cited as possibly playing a role in AMD's restructuring.
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