Advanced Micro Devices (AMD) has been given approval by the US authorities to spin off its manufacturing business.
The embattled micro-processing business announced last year that it would be selling the manufacturing arm to a foundry business, in which AMD would be a major shareholder, alongside Abu Dhabi-based Advanced Technology Investment Company (ATIC).
“We received all the required agency approvals to go ahead with the spin off. It will not only give us financial relief, but a good cash injection. The foundry company has already started to make headway on the New York fab [manufacturing plant],” says local country manager Imi Mosaheb.
The details
The plan essentially involves the outsourcing of an expensive section of the business. “It was a strategic and financial move. The spin-off business will alleviate the extremely high costs associated with the manufacturing of these components.”
Following hefty investments by both AMD and ATIC, AMD will own 44.4% of the new business and ATIC the rest.
ATIC will invest $2.1 billion to purchase its stake in the foundry company, of which it will invest $1.4 billion directly in the new entity, while the remainder will be paid to AMD to purchase additional shares in the foundry company.
ATIC has also committed to an additional equity fund which will make up a minimum of $3.6 billion and up to $6 billion over the next five years to fund the expansion of the new business's chip-making capacity.
The new company will also have close executive ties to AMD, since its current senior VP of manufacturing will head up the new business. Hector Ruiz will take on the new company's chairmanship, leaving the same role at AMD.
Cross-licensing
Despite the necessary agencies granting the approval, rival Intel still seems unhappy about AMD's decision.
The problem stems from cross-licensing agreements signed by the two companies in the 1970s, which hold certain restrictions on both businesses. The agreement is expected to expire in 2010.
Mosaheb said Intel is concerned about what AMD is doing, because outsourcing its manufacturing will make it more flexible and competitive. “If you are a large company with everything done in-house, it becomes difficult to be liquid. And flexibility is required in this day and age.”
The actual spin-off process is currently under way and is expected to take up to two years to complete. Many industry watchers say the lumping of financially intensive arm of the business will give AMD a much needed debt relief.
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