A goodwill impairment charge is essentially an admission by the company that it paid too much for an asset. Current federal regulations require that companies test the reported value of goodwill at least annually.
AMD already took one of these charges last summer; after this new impairment charge is calculated, it will have written down over 50 percent of the $5.4 billion value it assigned to ATI when it purchased the company.
AMD's SEC filing gives the following reasons for the new impairment charge. "This conclusion was reached based on the results of an updated long-term financial outlook for... ATI Technologies... in light of the current market conditions and economic outlook, which the Company conducted as part of its annual strategic planning cycle during the Company's fourth quarter and based on the preliminary findings of the Company's annual and interim goodwill impairment testing... The conclusion was also due to the deterioration in the price of the Company's common stock and the resulting reduced market capitalization."
AMD estimates that the charge will be material (read: significant), but it cannot estimate the size of the writedown at this time. The impairment will not affect AMD's cash-on-hand or material assets.
Given ATI's strong performance the past six months, it's seems likely that the new writedown was triggered by slumping sales in general rather than by any projected falloff in future video card technology. There's no good spin to put on this situation, but if misery loves company, AMD may soon have quite a bit of it. The one bright spot for AMD in Q4 is that it will also record the $142 million sale of its DTV assets to Broadcom, but that transaction increasingly resembles one tiny black snowflake in a blizzard of red.