Advanced Micro Devices
plans to announce Tuesday that it will split into two companies — one
focused on designing microprocessors and the other on the costly
business of manufacturing them — in a drastic effort to maintain its
position as the only real rival to Intel.
In
addition, the company said two Abu Dhabi investment firms would inject
at least $6 billion into the two firms, mostly to finance a new chip
factory that A.M.D. planned to build near Albany, N.Y., and to upgrade
one of the company’s existing plants in Dresden, Germany.
A.M.D.,
based in Sunnyvale, Calif., makes graphics, computer and server
processors. It will own 44.4 percent of the new entity, which has been
temporarily named the Foundry Company, a reference to the technical
term for a chip factory. The Advanced Technology Investment Company
will own the rest.
Advanced Technology, which was formed by the
Abu Dhabi government, has promised to put up $2.1 billion immediately
and contribute $3.6 billion to $6 billion more to build or upgrade chip
fabrication plants, also known as fabs. A.M.D. said the two companies
would share voting control equally.
The Mubadala Development
Company, an Abu Dhabi company that bought 8 percent of A.M.D. in
November, will pay $314 million for 58 million newly issued shares,
increasing its stake in the presplit company to 19.3 percent. It will
also get warrants to buy 30 million shares. A.M.D. stock closed Monday
at $4.23 a share, down 30 cents.
“We generally believe this deal
is a game changer for the industry,” said Khaldoon Al Mubarak, chief
executive of Mubadala. “It’s bold, and I think it’s smart.”
Coming
up with the billions of dollars needed to construct each new chip plant
has proved to be a huge drain on A.M.D., the perennial No. 2 to Intel
in the market for microprocessors, the powerful chips that control the
functions of personal computers and the larger corporate machines known
as servers. As of June, A.M.D. reported that it had $5.3 billion in
debt and just $1.6 billion in cash.
With the constant need to
devise smaller, faster, more energy-efficient chips to keep up with
Intel, A.M.D. was forced to turn to outside help.
“This is the
biggest announcement in our history,” said A.M.D.’s chief executive,
Dirk Meyer. “This will make us a financially stronger company, both in
the near term and in the long term, as a result of being out from the
capital expense burden we have had to bear.”
The semiconductor
industry faces constant consolidation because of the amount of
investment required to create ever finer components on semiconductors.
In addition, chip makers tend to experience significant financial
fluctuations as they adapt to shifts in manufacturing processes.
But
executives from both Abu Dhabi investment groups expressed optimism
that they’re buying into what is overall a growth business.
“Yes,
it is a cyclical business, but over time the trajectory is always
upwards,” said Waleed al-Mokarrab, chairman of Advanced Technology.
The
transaction, which A.M.D. expects will close in early 2009, must be
approved by shareholders, regulators and officials in New York and
Germany who oversee government subsidies for the local chip plants.
A.M.D.
said Foundry would manufacture processors for A.M.D. as well as other
customers. This will place the new entity in competition with a host of
companies, many of them in Asia, that produce chips designed by other
firms.
The breakup of A.M.D. is a major shift in the processor
landscape, leaving Intel as the only significant maker of PC chips to
still design and build its own products. Such an arrangement is often
seen as an advantage since it allows the chip maker to align new
products with the latest advances in manufacturing technology.
The
split, which has been in the works for more than a year, did not come
easily to A.M.D. According to company lore, A.M.D.’s co-founder and
longtime chief executive, W. J. Sanders III, known as Jerry, once
remarked that “real men have fabs.”
Under the deal proposed by
A.M.D., the company would retain many of the traditional benefits of
fabs, since part of Foundry will be dedicated to serving A.M.D. and
will remain in close communication with the company’s engineers.
“We feel like we’re still pretty manly at A.M.D.,” Mr. Meyer said.
Noting that Mr. Sanders made his quip over a decade ago, he added,
“Frankly, the math has changed.”
A.M.D. owns a pair of plants in
Dresden. One of them is already state-of-the-art, but the other is
undergoing a conversion that will let it produce processors for other
companies as well as A.M.D.
With the cash infusion, A.M.D. said
it was now committed to moving forward with plans, first announced in
June 2006, to build a huge $3.2 billion chip fab in Malta, N.Y., north
of Albany.
The plant, which will be owned by the new
manufacturing company, will employ about 1,400 workers and is expected
to get about $1.2 billion in incentives from the State of New York.
I.B.M., which also has chip plants in the state, has extended a technology pact with A.M.D. to 2015.
A.M.D.
will count $700 million of the $2.1 billion from Advanced Technology as
payment for its stake in the foundry company. Foundry will also assume
$1.2 billion of A.M.D.’s debt.
Source : http://www.nytimes.com/
