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Intel cash pays down AMD debt

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Less than a week after accepting $1.25bn from Intel in exchange for dropping its legal actions against Chipzilla, AMD has announced how it plans to use that windfall.

In a trio of Wednesday announcements, the world's second-largest microprocessor designer revealed a plan to slash its debt by as much as $1.4 billion, thus protecting itself from an avalanche of liabilities set to hit in 2012.

By doing so, AMD - which continues to hemorrhage cash - hopes to weather a flood of indebtedness that could scuttle its foundering financial situation.

In an effort to right its ship, AMD is offering to buy back up to $1bn in 5.75 per cent "senior notes" due in 2012, redeem all outstanding 7.75 per cent senior notes that are also scheduled to come due in 2012 - which the company reported (PDF) to the Securities and Exchange Commision total $390m - and offer up to $500m in new senior notes to help finance the debt-reduction scheme.

These moves should come as welcome news not only to AMD shareholders, but also to Intel.

As we reported when the settlement was announced last Thursday, AMD's continued existence is Intel's insurance against accusations of a monopoly position that could result in the world's largest processor maker being broken into pieces much as AT&T was in the early 1980s.

Although Intel CEO Paul Otellini said when discussing the $1.25bn payout that "it pains me to write a check at any time," the AMD cash infusion is a boon to both parties. AMD can use the money to retire a chunk of its crippling debt, and Intel can both be assured a marketplace in which it can't be denounced as a monopoly and also avoid the uncertainties of a jury being ask to determine whether it has engaged in anticompetitive practices.

It's a win-win situation - and one that cost Intel only a fraction of its current $12.9bn in cash and marketable securities. ®

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