AMD Hires Bank to Arrange Sale or Pursue other Alternatives

[no_1_dave]

http://www.reuters.com/article/2012/11/13/us-amd-jpmorgan-idUSBRE8AC14Z20121113

Short version:

A report from Reuters states that Advanced Micro Devices has hired JPMorgan Chase & Co to explore options, which could include a sale, as the chipmaker struggles to find a role in an industry increasingly focused on mobile and away from traditional PCs, according to three sources familiar with the situation. Sources told Reuters on Tuesday that an outright sale of the company is not a priority, and other options for AMD could include a sale of its portfolio of patents.

AMD said in an email to Reuters, "AMD's board and management believe that the strategy the company is currently pursuing to drive long-term growth by leveraging AMD's highly-differentiated technology assets is the right approach to enhance shareholder value. AMD is not actively pursuing a sale of the company or significant assets at this time."

One of Silicon Valley's oldest chipmakers, AMD is laying off engineers and some analysts are concerned it may not find new markets for its chips in time to reverse a declining cash reserve.

AMD's shares have fallen more than 60 percent this year, giving it a market value of about $1.4 billion. It also has long-term debt and capital lease obligations of about $2 billion.

Microsoft Corp, Google Inc, Samsung Electronics, Intel Corp and even Facebook Inc have been suggested by Wall Street analysts as potential suitors that could benefit from some of AMD's chip business, including its graphics division, PC processors and server chips.

Others say AMD's most valuable asset may be its deep bench of engineers or its patents.

Long version:

Spoiler

Advanced Micro Devices has hired JPMorgan Chase & Co to explore options, which could include a sale, as the chipmaker struggles to find a role in an industry increasingly focused on mobile and away from traditional PCs, according to three sources familiar with the situation.

The company's stock surged 18 percent on the news before ending up 5 percent at $2.09 on the New York Stock Exchange.

Sources told Reuters on Tuesday that an outright sale of the company is not a priority, and other options for AMD could include a sale of its portfolio of patents.

AMD said in an email to Reuters, "AMD's board and management believe that the strategy the company is currently pursuing to drive long-term growth by leveraging AMD's highly-differentiated technology assets is the right approach to enhance shareholder value. AMD is not actively pursuing a sale of the company or significant assets at this time."

One of Silicon Valley's oldest chipmakers, AMD is laying off engineers and some analysts are concerned it may not find new markets for its chips in time to reverse a declining cash reserve.

AMD's shares have fallen more than 60 percent this year, giving it a market value of about $1.4 billion. It also has long-term debt and capital lease obligations of about $2 billion.

A JPMorgan spokeswoman declined to comment.

Since the early 1980s, AMD has competed with much larger Intel and at times has made inroads with its PC and server chips. But setbacks at AMD limited those gains and AMD now faces new competition from companies designing low-cost and power-efficient chips based on ARM Holdings' technology.

Like Intel, Sunnyvale, California-based AMD was caught flat-footed in recent years with the emergence and fast growth of mobile devices.

But while Intel has deep pockets to fund research on new products to catch up, AMD faces declining cash flows and a more modest balance sheet.

EMULATE APPLE

Some investors believe part or all of AMD could be bought by a technology company that might want to emulate Apple Inc's tight control of software and components, a strategy credited in part for the success of the iPad and iPhone.

One source described AMD as a "legacy company" and said it might prove difficult to sell because of its dependence on the PC industry and lack of strong mobile offerings.

Another source mentioned AMD's game console chip business and growing focus on embedded chips as the company's silver linings.

Microsoft Corp, Google Inc, Samsung Electronics, Intel Corp and even Facebook Inc have been suggested by Wall Street analysts as potential suitors that could benefit from some of AMD's chip business, including its graphics division, PC processors and server chips.

Others say AMD's most valuable asset may be its deep bench of engineers or its patents.

AMD said last month it would slash 15 percent of its workforce, while devoting more resources to areas outside of its traditional PC business, including communications, industrial and gaming applications.

Last week, AMD said it added a second board member from its leading shareholder, Mubadala Development Co, which owns 15 percent of the chipmaker.

Rory Read took over as AMD's CEO in 2011 promising to fix long-standing execution problems that have plagued the chipmaker. But AMD has continued to lose money as well as market share to Intel and graphic chip rival Nvidia.

In October, Read told analysts on a conference call he had underestimated the speed of change in the PC industry and said AMD would move quickly to focus on selling chips for communications, industrial and gaming applications.

Goldman Sachs analyst James Covello estimated in a recent note to clients the chances of AMD's PC processor business being sold are between 15 percent and 30 percent.

Rather than selling AMD, bankers could help the chipmaker strengthen its finances in order to acquire technology it believes it needs to tackle new markets, said Williams Financial analyst Cody Acree.

"Right now they don't have the currency on their balance sheet or their share price to make an acquisition (of another company) viable," Acree said.

AMD recently announced it has licensed technology from ARM and will use it to build low-power chips for servers. But those products aren't expected to launch until 2014.

With the company burning through cash, industry analysts have recently become concerned about future liquidity.

AMD's cash declined $279 million in the third quarter to $1.48 billion. AMD said it was reducing its "optimal" cash target to $1.1 billion from $1.5 billion due to the business' now smaller size.

(Reporting by Nadia Damouni and Noel Randewich; Editing by Paritosh Bansal, Gary Hill and Bernard Orr)

 

[Judgeneo]

It was only a matter of time really, they have been loosing money for many years.

It would be interesting if ARM bought them...

 

[humbug]

Intel might be interested x86_64, A, they wouldn't need to pay AMD royalties anymore and more importantly B, to stop others from snapping it up.

But AMD insist they are not looking to sell up or sell assets, what was clear was that AMD's stock had a sharp upward spike when this rumour surfaced.

 

[weehamish]

This is retarded!

Soon everything will be Intel/Nvidia and the prices will be massive!!

Its not just AMD but everywhere is going bump these days wtf is going to happen?

People spending loads of money on PC parts but theres no decent game companies out there now! EA charge a fortune and release games 50% complete then either dont fix or charge for DLC that puts the rest of the game in!!

 

[andybird123]

I've got so many F2P games I'm in to right now that I don't have time to play or look at bought single player games anyway

I might give the new arma a go but that's about all that's on my radar right now

 

[spoffle]

Realistically AMD aren't going to go pop and just disappear.

Their graphics division is too valuable to just go pop, another company would at least pick up the graphics division.

AMD has a lot in terms of value even if their CPUs aren't competing well in the high end. The medium to low end and server environments are good markets for them. The problem is poor management, and them spending more money on things than they could really afford to. I wouldn't be surprised if the purchase of ATi is part of the reason that they are struggling with cashflow because it was a very big purchase for a company of their size.

 

[arc@css]

I wouldn't be surprised if the purchase of ATi is part of the reason that they are struggling with cashflow because it was a very big purchase for a company of their size.

+1

I think ATi was purchased for around 5 Billion $ (iirc). Servicing that debt must be a mouthful at times.

 

[opethdisciple]

Intel might be interested x86_64, A, they wouldn't need to pay AMD royalties anymore and more importantly B, to stop others from snapping it up.

But AMD insist they are not looking to sell up or sell assets, what was clear was that AMD's stock had a sharp upward spike when this rumour surfaced.

Legally this would not be allowed to happen. Intel would not be allowed to buy AMD.

 

[krooton]

No chance that Trinity could things get better?

 

['Wes]

Realistically AMD aren't going to go pop and just disappear.

Their graphics division is too valuable to just go pop, another company would at least pick up the graphics division.

AMD has a lot in terms of value even if their CPUs aren't competing well in the high end. The medium to low end and server environments are good markets for them. The problem is poor management, and them spending more money on things than they could really afford to. I wouldn't be surprised if the purchase of ATi is part of the reason that they are struggling with cashflow because it was a very big purchase for a company of their size.

This is what came to my mind when i read the OP's post.

 

[andybird123]

Legally this would not be allowed to happen. Intel would not be allowed to buy AMD.

there would certainly be an investigation
however, AMD are so small in comparison to intel that they are effectively not really competitors anyway, the actual effect on the market would be minimal

if AMD were serious competition for intel then yes they would frown upon it, but AMD's sales are so small in comparison that they would hardly bat an eyelid

if AMD were serious competition for intel then they wouldn't be looking at selling big chunks of themselves to stay afloat

 

[humbug]

if AMD were serious competition for intel then they wouldn't be looking at selling big chunks of themselves to stay afloat

That's an assumption, not a fact. AMD say they are not looking to sell themselves or any part of.

Until they do its just speculation, if they do.

 

[drunkenmaster]

there would certainly be an investigation
however, AMD are so small in comparison to intel that they are effectively not really competitors anyway, the actual effect on the market would be minimal

if AMD were serious competition for intel then yes they would frown upon it, but AMD's sales are so small in comparison that they would hardly bat an eyelid

if AMD were serious competition for intel then they wouldn't be looking at selling big chunks of themselves to stay afloat

Sales volume is entirely irrelevant, sales full stop, are relevant.

If there is a choice of a Piledriver 8 core at £70, or an Intel quad core at £250, amd's sales WOULD increase, Intel aren't remotely close to that much faster.

Having one chip available on the market that people would choose if Intel were horrendously priced in comparison is really all it takes for Intel to have to, at some level, compete on price.

AMD do have sales, and if Intel chips were all 30% higher in cost, AMD's sales would increase by a fairly significant number pretty quickly.

That is why the idea of them merging isn't acceptable to most.

In reality, AMD aren't the only reason Intel keep prices in check and Nvidia aren't the only reason AMD gpu prices are kept in check.

Imagine the next gen GPU comes out and Nvidia or AMD wasn't there, and the other company decided to make it £500, or £800, or £2000.... sure you'd sell a few but ultimately AMD, Nvidia, or Intel will do better making a £50/£100/£150/£200/£300/£400 product every gen and getting sales at every price point. Give them more power for a decent price and people might upgrade, you get sales and make money. Give them more power but no one can afford it, no sales, no profit.

There is a price top end, mid range and low end gpu's can be to get a decent number of sales, much higher and you reduce profit not increase it.

The limiting factor on CPU/GPU prices is what people can actually pay for them, the vast majority of the planet can't afford a new £1k gpu every year, or CPU, most can't easily afford a new £200 cpu or gpu every couple years.

You make products for a market, and the odd rare company like Apple, can generate a market for its product, charge silly money and persuade daft people to overpay for stuff that isn't worth it.

There are also LOTS of reasons to seek banks input besides selling the company, investors, projects, idea's, partnerships, etc, etc.

 

[Stanners]

Sales volume is entirely irrelevant, sales full stop, are relevant.

If there is a choice of a Piledriver 8 core at £70, or an Intel quad core at £250, amd's sales WOULD increase, Intel aren't remotely close to that much faster.

Having one chip available on the market that people would choose if Intel were horrendously priced in comparison is really all it takes for Intel to have to, at some level, compete on price.

AMD do have sales, and if Intel chips were all 30% higher in cost, AMD's sales would increase by a fairly significant number pretty quickly.

That is why the idea of them merging isn't acceptable to most.

In reality, AMD aren't the only reason Intel keep prices in check and Nvidia aren't the only reason AMD gpu prices are kept in check.

Imagine the next gen GPU comes out and Nvidia or AMD wasn't there, and the other company decided to make it £500, or £800, or £2000.... sure you'd sell a few but ultimately AMD, Nvidia, or Intel will do better making a £50/£100/£150/£200/£300/£400 product every gen and getting sales at every price point. Give them more power for a decent price and people might upgrade, you get sales and make money. Give them more power but no one can afford it, no sales, no profit.

There is a price top end, mid range and low end gpu's can be to get a decent number of sales, much higher and you reduce profit not increase it.

The limiting factor on CPU/GPU prices is what people can actually pay for them, the vast majority of the planet can't afford a new £1k gpu every year, or CPU, most can't easily afford a new £200 cpu or gpu every couple years.

You make products for a market, and the odd rare company like Apple, can generate a market for its product, charge silly money and persuade daft people to overpay for stuff that isn't worth it.

There are also LOTS of reasons to seek banks input besides selling the company, investors, projects, idea's, partnerships, etc, etc.

The ironic thing DM is you predicted that Nvidia would go broke a year or two ago(quite strongly if I remember correctly). Hope you sold your AMD shares when the price was good.

 

[humbug]

@ drunkenmaster, the prices would still go up.

The PC market is becoming a niche anyway, with no competion they can charge whatever they want (with in reason)

A £350 GPU will not become a £1000 GPU, but what it will do is gradualy become a £450 GPU.

 

[delta0]

The AMD cpus have been poor recently the gfx cards have been really good. I don't think we will see the end of the graphics side. The CPU side is where it could sink and perhaps ARM will step into to this role which i think is a good thing. The regulations currently out there and coming into force are going to put strong caps on the energy use of computer components which will benefit ARM.

 

[humbug]

The AMD cpus have been poor recently the gfx cards have been really good. I don't think we will see the end of the graphics side. The CPU side is where it could sink and perhaps ARM will step into to this role which i think is a good thing. The regulations currently out there and coming into force are going to put strong caps on the energy use of computer components which will benefit ARM.

ARM would need to find away to compete with Intel on performance to have any chance at all on the PC market.

ARM themselves are facing serious challenges from Intel in their own back yard right now, ARM have their own foreseeable problems, the last thing they need is to take on the vast giant on their own soil, they'll get crushed like an insect.

Much like whats happening to AMD now.

 

[delta0]

ARM would need to find away to compete with Intel on performance to have any chance at all on the PC market.

ARM themselves are facing serious challenges from Intel in ARM's own back yard right now, ARM have their own foreseeable problems, the last thing they need is to take on the vast giant on their own soil, they'll get crushed like an insect.

Much like whats happening to AMD now.

ARM have a major advantage with the power efficiency of their processors which the regulation is going to cause Intel issues. The problem is competition rules are going to bite Intel if AMD stop the CPU side. Also the consumer would suffer with poor performing overpriced CPUs which is where the law will target.

 

[andybird123]

That's an assumption, not a fact. AMD say they are not looking to sell themselves or any part of.

Until they do its just speculation, if they do.

I've not assumed they were, I read the article... you've misread the intention of my statement... I'm not saying they are going under, or are going to be sold, I'm saying IF they are in trouble and IF they are looking at selling... they aren't big enough to be seen as a mergers and monopolies issue

IF AMD get bought by intel and IF intel then jack up all their prices, they would be opening the door for one of the other chipmakers to introduce low cost windows compatible CPU's... I'm sure it wouldn't take all that much for ARM to beef up one of theirs or VIA are still producing x86 chips...

 

[delta0]

It would be impossible for Intel to buy them, the competition law would stop it. The law would also not allow Intel to monopolise the market either.