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By | Dan Goodin 12th December 2007 19:29

AMD braces for financial mayhem from ATI acquisition

In search of life raft

AMD, Intel's on-again, off-again rival, has given another example how it's mostly been off again over the past year, disclosing plans to take a "material" goodwill impairment charge for its $5.6bn acquisition of ATI Technologies.

AMD says it is unable, at least in good faith, to estimate the dollar range of this charge, but based on the language in Wednesday's press release, we're sure it will be, well, material. The conclusion was based on results from its annual "strategic planning" review and goodwill impairment testing.

From the start, savvy analysts recognized the ATI acquisition, which was announced 17 months ago, as fraught with risk. Not only did it threaten to distract AMD from its core competency of making microprocessors, it also offered little opportunity for streamlining manufacturing. Oh, AMD had to borrow $2.5bn to finance the purchase.

Since then, AMD's stock has lost more than half its value as Intel at last regained its footing with last year's release of the Core 2 Duo. AMD hasn't been helped by manufacturing problems that have made Barcelona, the four-core version of its Opteron processor, a scarce commodity. Last month, an investment firm from Abu Dhabi chucked AMD a life line in the form of a stock purchase in the range of $622m.

All of which begs the question: whither AMD?

AMD has said little about its plans for a turnaround, so the rumor mill has stepped in to fill the void. Rumor No. 1 was that CEO Hector Ruiz planned to step down. AMD appears to have quashed that talk in an article published on Tuesday by Reuters. Speculation remains that AMD may outsource manufacturing rather than run its own fabs, but so far the company isn't commenting.

The company has scheduled an analysts' conference for Thursday in New York. With serious concerns about cashflow, buggy products, manufacturing plans and the wisdom of an acquisition that 17 months ago AMD swore was central to its future viability, there's no shortage of topics to talk about. We can hardly wait. ®

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