Wednesday, November 21, 2007

AMD sells stake to Abu Dhabi

AMD heads back to the market for more cash. This time Abu Dhabi buys an 8.1% stake.

Interestingly, AMD only got 12.70 $ per share so there really wasn't any premium. Which is interesting and a telling sign. The positive of this transaction is that they now have a vested interest from backer who has unlimited funding at his disposal. So should they need to secure more cash, they know where to go. The down-side seems to be that this backer isn't paying a premium so it's shareholder equity to which they must say "ta ta".

In other news, anyone seen wide availability of Barcelona yet. Very very disappointing launch and Phenom isn't that much better either. Anandtech has a review. Core 2 Quad whoops the Phenom's ass and when Penryn comes out, AMD will need to churn out faster Phenoms at lower prices. There is only one way for AMD to win in this environment. Cut your prices and trash your margins. Not good for business though.

And all this while Intel is developing low cost high margin products like Silverthorne. When Otellini displayed this some months ago, I said this is a game changing product. If the reviews of the EEE PC are and indicator of what a reasonable performance low cost part can do, AMD needs to seriously re-consider it's strategy. Because Hector is nowhere close to 30% market share and better forget that dream.

In fact, I'd be pleasantly surprised if he stays in his job for another 30 weeks.


Anonymous said...

Couple problems - Abu Dhabi can't buy that much more stock without the US government looking into it. It's OK now as the stake is small and is not a controlling interest.

In a sense they did get a premium as there is ~8% stock dilution (so theoretically the value of the stock was ~8% lower - not entirely true as AMD corporation now has more assets in terms of cash).

This is a quick cash grab and a way to avoid more debt/loans - I'm not sure who would pony up more cash at this point even with a high interest rate and I don't think the convertible note SCHEME is going to work anymore. Look at how strong the MS loan terms, could you imagine what the terms would be like NOW? Of with the stock issuing the rest of the AMD stockholders "take one for the team" as their stock is diluted by 8%. This is not a sustainable model as they can't just keep issuing more stock:
- eventually the stockholders will have to approve this -I'm not sure how much AMD is currently authorized to issue.
- eventually you'd think the board would step in, though they've been asleep at the wheel for the last year or so, so who knows if it will happen.
- the market will wise up and eventually punish AMD for this. AMD is still owned ~66% by institutions they could easily start selling off and drive the stock price down, which in turn would make this maneuver less useful in the future.

S said...

AMD had to go far to fetch funding this time. Can't believe they aren't able to get funding within US.

Good to see that you are back.