Advanced Micro Devices, one of the world’s Top 10 suppliers of semiconductors who sells microprocessors, graphics processors, chipsets and chips for various consumer electronics, may be acquired by a private equity group, according to a market rumour. The current position of AMD is pretty hard: its microprocessors are facing tough competition by Intel Corp., while its graphics chip group struggles to release its new product.
“We were surprised to see AMD shares rally yesterday given what we believe to be increasing concerns about cash flow at the company. When we polled clients as to the reason behind the strength we were told that private equity rumors were circulating,” analyst Doug Freedman of American Technology Research wrote in a report on Thursday, EETimes web-site reports.
Private equity groups made two notable acquisitions of semiconductor firms last year: a consortium of investors bought Philips Semiconductor in August, whereas another group of investors acquired Freescale in September. Both semiconductor companies had bright prospects in various industries and it is undeniable that the need for chips will continue to grow rapidly in the future, which may mean that private equities may be looking forward other semiconductor firms as well.
“While we do not doubt that private equity is sitting on cash it needs to put to work, we have a hard time seeing how it would get involved in AMD at the present valuation,” Mr. Freedman wrote in his report.
The times for AMD are pretty tough these days, still, it does not mean there is no way out.
The company lost $574 million on sales of $1.77 billion in the fourth quarter of its fiscal 2006. AMD has to decrease pricing of its desktop and server processors to sustain its market share under the pressure of Intel’s processors based on the Core 2 micro-architecture that outperform AMD’s offerings in a number of benchmarks. AMD’s next-generation code-named K8L microprocessors will emerge in mid-2007 and shortly after may face serious competition from Intel’s revamped Core 2 chips with higher clock-speeds. ATI, AMD’s graphics products group, is trying hard to release its DirectX 10-supporting code-named R600 graphics processing unit and a family of its derivatives in order to regain market share.
On the other hand, AMD’s losses in Q4 include ATI acquisition related charges of 550 million. The company is ramping up manufacturing using 65nm process technology, which allows it to make them more cost-efficient and decrease pricing without sacrificing margins. The company continues to gain market share in desktop and mobile segments and hopes to recapture its positions in the server market with new quad-core chips. In addition, the firm plans to launch 45nm process technology online in mid-2008 and present its Fusion processors that combine x86 and graphics processors in 2009. Still, in order to accomplish all its goals, AMD may need additional cash.
Officials for AMD did not comment on the news-story.