AMD shares jump at birth of The Foundry Company
MD stands for Abu Dhabi
AMD shares rose more than 18 per cent on Wall Street this morning, following confirmation from the struggling chip maker that it will spin off its manufacturing operations and build a wafer fab in conjunction with its money-spinning bedfellow, the Advanced Technology Investment Company (ATIC).
As we reported earlier, ATIC will cough up $2.1bn to buy a 44.4 per cent stake in newly created The Foundry Company. It will invest $1.4bn directly into the new firm, with the remaining cash to be paid to AMD to allow it to purchase additional shares in The Foundry Company.
In addition, The Foundry Company will swallow $1.2bn of AMD's existing debt. ATIC, which was formed by the Abu Dhabi government but claims to be "directed by commercial principles", also plans to inject a further $3.6bn to $6bn over the next five years to fund the expansion of the foundry's chip-making capacity.
Mubadala, an existing AMD shareholder which is also based in Abu Dhabi, will up its stake from 8.1 per cent to 19.3 per cent of outstanding AMD shares on a fully diluted basis. It will purchase $314m of 58 million newly issued AMD shares and warrants for 30 million additional shares to increase its stake. Mubadala will also be given the right to appoint a designee to AMD's board.
Fabs in Dresden, Germany will be given a "state-of-the-art" makeover, and meanwhile construction of a new plant in Saratoga County, New York is also in the pipeline. The firm hasn't signed on the dotted line with the New York State yet. It will begin the process today, confirmed chairman Hector Ruiz, who was ousted as CEO earlier this year following a dire run of results.
In July AMD replaced Ruiz with longtime planned successor Dirk Meyer, when the company also confessed that it lost an eye-popping $1.19bn during its second quarter.
When asked if the decision by ATIC and AMD to buddy up on the deal - which Meyer had earlier described as "the biggest announcement in our history" - could be ill-timed given the current state of the US economy, Ruiz replied: "In these troubled times this move represents a tremendous opportunity to demonstrate and validate a longtime vision for the State of New York."
Meyer bigged up the fact that 1,400 new jobs will be created in NYC. Debt-ridden AMD has in recent quarters become a regular bearer of bad news to its staff, slashing jobs worldwide as it attempted to make cost-cutting savings amid so much financial loss.
The Foundry Company's CEO Doug Grose robustly proclaimed today that the combination of "operational excellence, leading-edge technology developed in collaboration with IBM, and an aggressive capacity roadmap" meant that the firm "aspires to drive the next round of innovation in this industry".
Meanwhile, the search is on for a new chairman for The Foundry Company, although the outfit isn't revealing anything about who may fill that role. Meyer said the board of directors will make that decision "over the coming weeks".
Many analysts and hacks have speculated for months about AMD's next move. But one thing that everyone agreed on was that the firm would have to do something radical to survive. Wall Street this morning blinked first - shares shot up 18.2 per cent to $5 in premarket trading following the announcement.
Oh, and look at that - we didn't even mention Intel once. ®