AMD tries to reassure on debt

Advanced Micro Devices said it expects to report profits next year from its chip design business, the backbone of a company trying rebuild market share and better compete with rival Intel.

AMD executives spent much of a meeting with analysts and investors on Wednesday emphasising the company’s efforts to remake itself as profitable chip designer, while addressing worries over the heavy debt it has accumulated in doing so. AMD’s debt rose to roughly $3.9bn last year, but dropped to $3.2bn as of the end of the third quarter, according to Thomson Reuters. UBS said in a recent note that AMD has $1.9bn coming due in 2012.

Chief Financial Officer Thomas Seifert told analysts gathered at the company’s headquarters that the debt issue is “as high on our list of priorities as it can be.”

Seifert is hoping to keep as much as $1bn cash on hand in the future, he said, but would use any excess cash to pay down the debt load.

Seifert and other top executives at the meeting sought to paint the picture of AMD as a changed company, one that can compete with Intel, which dominates the chip business. By spinning off and becoming a minority stakeholder in Globalfoundries, its semiconductor manufacturer, AMD has begun to concentrate on designing microprocessors and graphics cards, which helped the design arm of the company eke out a profit of $2m in the third quarter.

It said that business should remain profitable in 2010, while margins would run between 40 per cent and 45 percent, with the expectation of higher margins down the road. In October the company reported a net loss of $128m for the third quarter on revenue of $1.4bn.

“We’re going to turn into a cashflow generating machine,” claimed chief executive Dirk Meyer after discussing some of the company’s upcoming chip designs. “I can already hear the cash registers starting to ring, which is wonderful.”

Along with new microprocessor and graphics chip designs, executives said AMD would focus on consumer-oriented market segments, including mid-range desktops and notebooks. Out of the 300 million PCs the company expects to be sold next year, some 180 million will go to consumers. Given those expectations, AMD said it would concentrate on technology that produces better graphics, something consumers often demand.

“Our market is being driven by consumers, and that’s what’s driving the technology,” he said. “Increasingly, people aren’t going to be satisfied showing up to work and having a lousier experience on their computer than they do at home.”

AMD said spending for microprocessors, which run computers, and graphics chips, which are central to producing pictures, watching videos and playing games, would rise between 10 and 15 per cent in 2010. Meyer also made clear that he felt AMD had been vindicated by recent rulings against Intel in European Union, Korean and other courts. AMD has long claimed its success in the market was hampered by anti-competitive behaviour by Intel.

“I’m looking forward to a future in which our ability to succeed as a business is governed by the quality of our products and the quality of our customer relationships,” he said. “I can tell you that hasn’t always been true.”

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