AMD'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 on 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.
Adding fuel to the speculation fire, AMD in July announced it
was
sliding Hector Ruiz from the CEO
position to the position of executive
chairman, and moving then COO Dirk Meyer to the president and CEO
seat.
The management changes led to further conjecture that AMD could
split its design and manufacturing entities into two separate
companies through a possible spin-off of its costly fabs.
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 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 45nm 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.
By Suzanne Deffree, Managing Editor, News - Electronic News
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