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AMD fab-lite strategy announcement in 2 weeks, analyst says
A possible fab spin-off could then be formed into a separate pure-play foundry, supported by IBM 45-nm process technology and cash from a Middle East investment group.
By Suzanne Deffree, Managing Editor, News -- Electronic News, 9/4/2008
Advanced Micro Devices Inc's tight-lipped manufacturing strategy may soon be disclosed and, according to one analyst, could include the sale of its Dresden, Germany, fabs.
“Our channel checks indicate that AMD may announce its official fab-lite strategy in two weeks,” John Lau, an analyst with Jeffries & Co, wrote in a research note Wednesday. “This strategy may include plans to divest Fabs 30 and 36, located in Dresden, Germany. The fab spin-off may [be] formed as a separate entity to operate as a pure play foundry. The new foundry would manufacture multiple semi products, not limited to microprocessors.”
AMD’s manufacturing plans have been a popular topic of discussion among analysts and other market watchers for all of 2008. While the industry is split as to whether AMD should keep its fabs or spin them off, its plans are considered key to the chip maker’s competitiveness. Despite cries from the industry for information, the company has kept details of such plans guarded, with its latest public statements pointing to an announcement on its manufacturing plans by end of year.
According to the Jeffries report, a Middle East investment group could contribute cash for a stake in spun off foundry.
“We understand that a Middle Eastern group may acquire a large position in the new foundry and fund its purchase with cash. Recall that The Mubadala Fund, Abu Dhabi's sovereign investment vehicle, already purchased an 8.1% holding of AMD in mid November [2007] for $622 million. We anticipate AMD would receive a substantial cash payment for the spin-off which it could use to pay down debt and fund R&D activity,” Lau said, estimating AMD’s debt at more than $5.3 billion.
“We believe post its reorganization as a fab-lite operation, AMD should save on $9.1 million [per quarter] on Fab 36 term loan interest and a good chunk of capital lease as well as amortization of capitalized interest for a total quarterly interest expense savings of [more than] $15 million on GAAP basis,” he said. Lau (pictured, left) also said that such a fab-lite reorganization should result in a more than $680 million annual capex savings.
Beyond the possible financial benefits of such fab spin-outs, Lau pointed to possible design benefits through AMD’s strong partnership with IBM.
“We believe that IBM will contribute their process technology to the fab spin-off. IBM announced its 45-nm process technology in February 2008. Although AMD is still far behind Intel, We believe the immediate access to this type of IP is a solid step for AMD to get back in the game,” the analyst said.
AMD would not comment on the report.
