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AMD moves to fix finances following Intel settlement
Chip maker unveils moves to ease debt; analyst sees GlobalFoundries spinoff
By Benjamin Pimentel, MarketWatch
Last Update: 10:18 AM ET Nov 18, 2009
SAN FRANCISCO (MarketWatch) - Shares of Advanced Micro Devices rose Wednesday after the chip maker announced moves to ease its debt burden, apparently cashing in on a $1.25 billion settlement with Intel Corp. last week.
Meanwhile, a Barclays analyst said AMD's next move could likely be to fully spin off GlobalFoundries into an entirely separately entity, paving the way for "a financially sounder AMD Product Co."
Shares of AMD AMD rose 3% Wednesday morning, even as the broader tech sector sank into the red. Rival Intel INTC was down more than 1%.
In a filing with the Securities and Exchange Commission, the Sunnyvale, Calif.-based chip giant announced moves that could potentially bring down its debt due in 2012 to $485 million and reduce its total debt by $890 million. AMD said it will use cash to redeem and retire roughly $390 million in high-yield debt due in 2012, and use cash and a new debt offering of $500 million of senior notes to be due in 2017 to tender for up to $1 billion on $1.485 billion of convertible notes due in 2012.
Last week, Intel agreed to pay AMD $1.25 billion as part of a settlement of all legal disputes. The agreement also included new cross-licensing agreement that would settle disagreements between the two companies on how to view GlobalFoundries. See story on Intel-AMD legal settlement.
Global Foundries was created after AMD spun off its manufacturing facilities in a joint venture with the Advanced Technology Investment Co. and Mubadala Development Co., both of Abu Dhabi. The move was aimed at easing AMD's mounting financial woes a part of its so-called "asset smart" strategy.
However, Intel had argued that GlobalFoundries should not be covered by an earlier cross license agreement because it is not a subsidiary of AMD, sparking a heated dispute, even as the two companies also battled each other over antitrust issues.
Barclays Capital analyst Tim Luke said the new agreement settles the issue, saying in a note, "We view the new 5-year cross licensing agreement between Intel and AMD which does not require GlobalFoundries to be structured as a subsidiary as a major strategic gain for AMD supporting the company's longer term goal of operating as a 'design' company."
In fact, he speculated that the next step for AMD may be to completely spin off GlobalFoundries.
"While AMD has not yet laid out a timeline of when the company expects to divest its stake in GlobalFoundries, we believe the spin-off of GlobalFoundries is a key area of focus for investors and believe that a financially sounder AMD Product Co. with an improved capital structure and a newly-restructured licensing agreement," Luke wrote.
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