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Tue 7 Oct 2008 07:07 AM

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Abu Dhabi agrees $8.4bn microchip deal

Cash injection for AMD as US company struggles in high-tech battle with Intel.

Advanced Micro Devices Inc, the money-losing microchip maker struggling to compete with Intel, will spin off its manufacturing plants as part of an $8.4 billion investment from the Abu Dhabi government.

Abu Dhabi will pay $700 million for a stake in a new company that will own two plants in Germany and build a factory in New York, newswire Bloomberg reported on Tuesday.

The new company, which will assume $1.2 billion of AMD's debt, will receive as much as $6 billion from Abu Dhabi to expand plants and get $1.4 billion in operating capital.

Abu Dhabi will also pay $314 million to double its stake in AMD to 19 percent, AMD said today in an e-mailed statement.

The cash infusion is a lifeline for AMD, which is forecast to report a third straight annual loss this year and is falling behind on investments needed to keep up.

Intel spends more on plants and research than AMD makes in annual revenue. Abu Dhabi is building on a 2007 investment as it seeks a foothold in the technology industry.

"It will make AMD financially strong and more tightly focused," AMD chief executive Officer Dirk Meyer said in a telephone interview.

The new company, called Foundry Co, will make processors for AMD and seek contracts from other companies, while AMD will continue to design and market chips.

That structure means AMD can develop new products without having to invest billions of dollars in plants, said Meyer, who took over as CEO in July.

AMD, based in Sunnyvale, California, has struggled since its founding in 1969 to keep up with Intel.

AMD, now Intel's only competitor in computer processors, has posted nine annual losses in the past 15 years and its stock has fallen 90 percent since reaching $42.10 in February 2006. Advanced Technology Investment Co, a newly created arm of the Abu Dhabi government, will own about 56 percent of the manufacturing company, leaving AMD with the rest.

Meanwhile, Mubadala Development Co, another investment arm of Abu Dhabi headed by Khaldoon Al Mubarak, is doubling its stock interest in AMD less than a year after its initial investment, when it paid $12.70 a share, almost triple the stock's closing price on Monday.

"Obviously it's been a very difficult year from the perspective of the performance of the shares of AMD," Mubarak said. "That aside, we totally buy into the asset-smart strategy that AMD's pursuing. We will be able to realize the type of returns that we had always anticipated."

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Frank Benetly 11 years ago

AMD deal should also bring the company to the region to open manufacturing plant in U.A.E. creating jobs, and bring industry & technology to U.A.E. UAE doesn't need only billion of dollars investment in real estate and high rise buildings.