Cash-strapped AMD drills for green gold in Lone Star State
Chip biz flogs campus for $164m, but wants to stay put
Processor bakery AMD will sell off and lease back its offices in Austin, Texas, to raise $164m in much-needed cash.
The chipmaker will sign a 12-year lease on the "Lone Star Campus", with an optional extension clause if the firm decides to stay on at the location.
It's not the first time that AMD has shifted some real estate to get its hands on some readies: the company has leased its headquarters in Sunnyvale, California, since 1998 when it did a similar deal on the property, and just five years ago it sold and leased back its major site in Ontario, Canada.
AMD said it had also put its "largely unoccupied" Building 3 property in Austin up for sale. Any workers still in the location will be "consolidated at other sites".
“As we reset and restructure AMD for long-term success, we are taking a number of steps designed to optimise our business and monetise assets,” Devinder Kumar, chief financial officer of AMD, said in a canned statement. “The sale of our Austin campus will unlock a significant amount of capital."
Kumar and chief exec Rory Read said earlier this year that they hoped to return AMD to profitability in the second half of this year, with new APU and graphics products helping as well as restructuring and cost-cutting. ®
Re: Lots of companies doing this
It's precisely that - an accounting wheeze. One of the main metrics you'll see in any company report is the return on assets - not how much money you make, but how much money you make as a proportion of how much money is tied up inside the company in real estate, plant, reserves etc. The argument is that a company making £2m on £10m of assets is "better" than one making £3m on £20m. In purely percentage terms it makes sense at least in the short term but it isn't how great companies are built. If you can free up cash to spend profitably elsewhere perhaps, but more often than not it simply ends up going back to shareholders or blown on overpriced vanity acquisitions - witness the current kerfuffle over the proposed Dell buyout for example.
The problem is that inevitably makes the company smaller in absolute terms and it either loses markets (when divisions are sold off) or running costs (when assets are sold and outsourced). Neither is good for the long term prospects of the company. Greater leverage also means greater risk, higher borrowing costs and greater vulnerability to events such as the financial crash.
There's plenty of examples of good companies being run into the ground this way: personally ICI is always the one that comes to mind. A once great industrial behemoth got taken over by the beancounters who sold off division after division and plant after plant, arguing "those are low growth areas" all along the line. They apparently didn't notice the company had shrunk and shrunk until it was taken over by foreigners for beer money.
In short, if you have money involved in the widget business pull it out pronto when it is run by people proclaiming "this is how you run a business" instead of "this is how you make a better widget".
Lots of companies doing this
I think this is the latest MBA/accounting fad from the last 20 years or so. Not sure why, but apparently it's bad to have assets like real estate on your books. Why that is is beyond me - don't they get to knock a huge amount off their profit number for the taxes and maintenance of property they own?
But I guess that's why I'm not an MBA or accountant.
It's not just limited to companies either - here in the US, state governments are doing the same thing, selling and leasing back facilities, roads, bridges, etc.
This is a smart move
As noted this is the smart means to get a better return on your fixed assets. It provides tens of millions of dollars operating capital at below market rates and it has good tax advantages. It's all just a "paper deal".
AMD's recent wins for Xbox, PS4 and from many OE laptop builders will improve AMD's cash flow substantially in the not too distant future. Richland is actually shipping and OE systems with Richland should start to go on sale next month with more lower powered 17w Richland chips to start shipping next month to OEMs.