AMD's restructuring is more than just on the manufacturing end, and one analyst has suggested AMD may soon sell off some of its ATI consumer chip assets to Broadcom.

The report from Doug Freedman of American Technology Research was issued Wednesday in the midst of speculation as to what the chip maker will do with its manufacturing assets.

Industry analyst are divided as to whether AMD should sell or spin off its fabs, allowing for a cash infusion and bettering its chances for an immediate return to profitability after several straight quarters of loss, or keep its fabs, instead splitting AMD into two divisions, one focused on design and one on manufacturing.

The American Technology Research report also comes two weeks after AMD announced a management shakeup that saw Hector Ruiz yield the position of CEO to Dirk Meyer after the company announced a massive $1.2 billion loss for its Q2. Part of the loss was due to AMD's ATI unit.

AMD bought the GPU maker in October 2006 for approximately $5.4 billion and since then has faced much criticism on its purchase price.

AMD stated in May plans to exit what it described as "non-core" businesses by the end of Q3. The company did so in its Q1 financial statement, on which analysts noted company management was "looking to divest the consumer-electronics business, as it has a disproportionately higher R&D expense; higher revenue and margin volatility; and is not core to AMD's business."

AMD continued making statements as to its non-core business exit plans in its Q2 report earlier this month.

"In our Q2 earnings report, we listed both our digital TV and handheld divisions as discontinued operations, due to our intention to divest," Jo Albers, an AMD representative told Electronic News this morning.

This week's American Technology Research report points directly to the handset and digital TV lines and suggests Broadcom may be a possible suitor for one of the two units.

"We believe AMD's executive level changes are a signal that restructuring actions will become more visible to investors," Freedman said in the research note.

"The list of actions includes new faces in many high profile roles, the sale of non-core businesses including the ATI CE businesses (both handset and digital TV product lines), and lastly, manufacturing base divestiture in an effort to share process technology development costs with a wider product/market base.

"In the near-term, we believe that Broadcom is a likely candidate to acquire AMD's consumer TV business. We also view the handset-based product line as available for sale; however, we are unable to identify a potential buyer given the limited customer base," Freedman continued.

AMD would not discuss its plans for the divestitures and would not identify Broadcom as a potential buyer of the consumer TV unit.

"It would be premature at this point to comment on potential negotiations," the AMD rep said. Broadcom did not return Electronic News calls for comment by press time.

However, Freedman estimated that Broadcom could reasonably pay $250 million to $375 million for the business and said that Broadcom "has a comfort level and history" with integrating former ATI products and management.

"We believe the revenue contribution is above $250 million per year, but could grow even faster with BRCM's [Broadcom's] consumer-focused direct field sales network," Freedman said.

"Though the current gross margin is closer to AMD's corporate average, we believe that BRCM will leverage cost advantages using 65nm and finer processes with its foundry partner TSMC."

Freedman further said American Technology Research believes that Broadcom intends to further scale its consumer electronics group and noted that the company has prior experience with ATI in hiring consumer management, as well as previously purchasing consumer businesses, including its SiByte processors deal in 2000.

"The future of ATI's embedded application processor business is more questionable as most interested companies already have in-house capability in this highly crowded segment. ATI's customer base is limited and has been losing share, making the outlook harder to forecast," Freedman said.

AMD's consumer TV business includes digital TV chips that are sold into major name brand digital TVs. American Technology Research said it believes Sony and Samsung, as well has China's HiSense, are ATI customers.

By Suzanne Deffree, Managing Editor, News - Electronic News

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