AMD goes fabless with Abu Dhabi cash injection

US chip maker Advanced Micro Devices (AMD) plans to spin off its manufacturing plants into a $5.7bn (£3.25bn) joint venture with Abu Dhabi to get a cash injection and shrink debt to better compete against larger rival Intel.

Advanced Technology Investment Company (ATIC), an Abu Dhabi state-owned venture capital firm, said it will invest $2.1bn for a 55.6 per cent stake in the venture, of which $700m will go directly to AMD, which will hold the remaining stake. The two will divide the venture's board seats equally.

ATIC also committed to investing another $3.6bn to $6bn over five years to fund the venture's expansion. The 3,000-person new company will hold AMD's two plants in Dresden, Germany and make all of its central processing units, as well as chips for other companies.

Another Abu Dhabi government company, Mubadala Development, will spend $314m to increase its stake in AMD to 19.3 per cent from 8.1 per cent and gain a seat on AMD's board.

Brian Mata, an analyst at IC Insights in Arizona, said AMD desperately needed the boost. The company has posted seven consecutive quarters of losses and is forecast by Wall Street to report another quarterly loss next week.

"The key thing is the financial backing from Abu Dhabi because AMD was essentially out of money," said Mata.

He said AMD can focus on design and has the money to try to catch up with Intel, but the new venture has a challenge competing with existing contract chip manufacturers.

"The foundry business is already pretty entrenched," he said, citing Taiwan Semiconductor Manufacturing (TSMC), United Microelectronics, Singapore's Chartered Semiconductor Manufacturing and China's Semiconductor Manufacturing International.

AMD has lost market share to Intel and in the last few years was forced to weigh the price of its pride in owning the semiconductor fabricating plants, or 'fabs', which most other chip makers gave up long ago.

It has also been 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.

"Today is a landmark day for AMD, creating a financially stronger company with a tightened focus," Dirk Meyer, president and chief executive officer of AMD, said in the statement.

The new venture, temporarily called Foundry Company, will assume all $1.2bn of AMD's manufacturing operations debt so the remaining company can compete hard against Intel, which sells about 80 per cent of the central processing units at the heart of the world's one billion PCs. AMD makes the rest.

The venture 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 venture will upgrade one of the two plants in Dresden and build the plant in New York to the latest technology standards, AMD said. It said the venture, which will be on AMD's balance sheet, may ultimately build a fab in Abu Dhabi.

ATIC chairman Waleed Al Mokarrab said on a conference call that this was his company's first major investment and "though owned by the Abu Dhabi government, ATIC will be directed by commercial principals that will generate commercial returns."

The deal will be welcomed by IBM, which has worked closely with AMD and other chip makers to improve chips. The company will be part of the IBM technology alliance, making it easier to build chips for members.

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