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AMD set to announce factory sell-off

The chipmaker is expected to announce its turnaround plan, which will involve outsourcing production and reducing its debt.

AMD

Bosses at AMD are poised to reveal their turnaround plan for the chipmaker today, a move that will see it dispose of parts of the business.

Sources close to the situation said that a formal announcement due later this afternoon UK time will reveal sweeping changes to the way the company operates and manufactures product.

AMD is expected to hive off its chip fabrication plants in favour of outsourcing final production to third party companies. Fabrication plants, known as Fabs, are a costly part of any chip making business as each one costs billions to build, retool and maintain.

By selling off its manufacturing plants, the company hopes to generate a cash lump sum which it will use to reduce its debt and bolster its development work.

Two Abu Dhabi state-owned venture capital companies are backing the move. One will put up at least $5.7 billion (3.16 billion) into the spun off factories and the other will buy more than $300 million (166 million) in AMD stock and warrants.

The new factory-owning Foundry Company will assume all $1.2 billion of AMD's manufacturing operations debt, reducing pressure on the main AMD company and allowing it to compete more effectively against market leader Intel, which sells about 80 per cent of the processors used in the world's one billion personal computers. AMD makes the rest.

AMD has lost market share since it was hit by problems with its high-end personal computer and server Barcelona chip, and had bumps along the road after acquiring graphics chip maker ATI. The European Commission is investigating whether Intel illegally paid computer makers and retailers to avoid AMD.

The Foundry Company plans to break ground next year for a factory in upstate New York employing 1,400 people, if New York State will transfer financial incentives to the new company.

The chief executive will be Doug Grose, senior vice president of technology at AMD, and its new chairman will be Hector Ruiz, now chairman of AMD.

The Foundry Company will upgrade an existing AMD plant in Dresden, Germany, and build the plant in New York to the latest technology standards. Abu Dhabi's Advanced Technology Investment Company (ATIC) will hold half the board seats and own 55 per cent of the Foundry Company, its temporary name. AMD will have the rest and the company will be on AMD's balance sheet.

The 3,000-person company will make all of AMD's processors as well as chips for other companies.

The deal is to close at the end of 2008 or early in 2009, if approved by stockholders.

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