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 [1] - 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 [2] up to $1bn in 5.75 per cent "senior notes [3]" due in 2012, redeem [4] all outstanding 7.75 per cent senior notes that are also scheduled to come due in 2012 - which the company reported [5] (PDF) to the Securities and Exchange Commision total $390m - and offer [6] 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 [7] 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. ®

Links

1. http://www.theregister.co.uk/2009/10/15/amd_q3_2009_earnings/
2. http://www.amd.com/us/press-releases/Pages/amd-commences-convrtble-notes2009nov18.aspx
3. http://financial-dictionary.thefreedictionary.com/Senior+note
4. http://www.amd.com/us/press-releases/Pages/amd-announces-redem-of-sr-nts2009nov18.aspx
5. http://phx.corporate-ir.net/phoenix.zhtml?c=74093&p=irol-SECText&TEXT=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvZmlsaW5nLnhtbD9yZXBvPXRlbmsmaXBhZ2U9NjYxMjc4NSZhdHRhY2g9T04mc1hCUkw9MQ%3d%3d
6. http://www.amd.com/us/press-releases/Pages/amd-announces-500-mil-of-sr-nts2009nov18.aspx
7. http://www.theregister.co.uk/2009/11/12/intel_buys_insurance/

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