Business - To keep up with Intel,AMD will split in two

Ashlee Vance

In a drastic effort to maintain its position as the only real rival to Intel, Advanced Micro Devices said in advance of a formal announcement Tuesday that it would split into two companies, one focused on designing microprocessors and the other on the costly business of manufacturing them.
In addition, the company said, two Abu Dhabi investment companies would inject at least $6 billion into the new companies, mostly to finance a new chip factory that AMD intends to build near Albany, New York, and to improve one of the company's existing plants in Dresden.
AMD, based in Sunnyvale, California, makes processors for graphics cards, personal computers and larger corporate servers. It will own 44.4 percent of the new entity, which has been temporarily named the Foundry Company, a reference to the technical term for a chip factory. The Advanced Technology Investment, created by the Abu Dhabi government, will own the rest.
Advanced Technology Investment has promised to put up $2.1 billion immediately and contribute $3.6 billion to $6 billion more to build or improve chip fabrication plants. AMD said the two companies would share voting control equally.
Mubadala Development, an Abu Dhabi company that bought 8 percent of AMD in November, will pay $314 million for 58 million newly issued shares, increasing its stake in the pre-split company to 19.3 percent. It will also receive warrants to buy 30 million shares. Shares of AMD jumped 16.3 percent in early trading in New York on Tuesday.
"We generally believe this deal is a game-changer for the industry," said Khaldoon al-Mubarak, chief executive of Mubadala. "It's bold, and I think it's smart."
Coming up with the billions of dollars needed to construct each new chip plant has proved to be a huge drain on AMD, the perennial No. 2 to Intel in the market for microprocessor semiconductor chips. As of June, AMD reported that it had $5.3 billion in debt and $1.6 billion in cash.
With the constant need to devise smaller, faster, more energy-efficient chips to keep up with Intel, AMD turned to outside help.
"This is the biggest announcement in our history," said Dirk Meyer, the AMD chief executive. "This will make us a financially stronger company, both in the near term and in the long term, as a result of being out from the capital expense burden we have had to bear."
The semiconductor industry faces constant consolidation because of the amount of investment required to create ever finer components on semiconductor wafers. In addition, chip makers tend to experience significant financial fluctuations as they adapt to shifts in manufacturing processes.
But executives from both Abu Dhabi investment groups expressed optimism that they were buying into what was, over all, a growth business.
"Yes, it is a cyclical business, but over time the trajectory is always upwards," said Waleed al-Mokarrab, chairman of Advanced Technology Investment.