So how does AMD pull this one through?

[mrmt]

I havent been paying enough attention to how the GF deal is structured. But somebody pointed out that it appears that AMD is being gutted to pay for GF. Think there is any truth to that?

The WSA was built around two premises:

1) That GLF would be able to keep 6-12 months behind Intel in node introduction within the IBM agreement framework.

2) That AMD volumes, if they went down, would be by no lower than 20%, and those would be a nice inflow for the nascent venture.

If those two premises were true we woud hear no news about the WSA, much less worry about the 2024 exclusivity clause.

But a lot of "bad" things happened. Intel kept their tick-tock scheme further ahead of the entire industry, and GLF not satisfied in screwing up their 32nm node did the same with 28nm. On top of that AMD designs revealed themselves subpar, further eroding the volumes needed to sustain the purchase agreement.

But this is business risks, right? It's easy to put the blame on GLF and forget some very bad decisions AMD did in the past. Had AMD somehow got the money to implement IBM 32nm SOI process on AMD-owned fabs, they would have much of the same problems GLF faced, but nobody to foot the bill like ATIC/Mubadala did with the GLF venture. The tie-up to IBM's fortunes was made in AMD's golden era, and was an exclusive responsibility of their BoD, yet another incompetent decision.

The WSA is a consequence of the incompetent management that is becoming an AMD tradition and the tough position they were for a negotiation with their only suitor.

And GLF isn't in a nice position once you step out of the ppt land. They are slipping in the foundry race, they could get no flagship MPU company to manufacture with them, and they still have to foot a huge CAPEX bill in the next years. Given their money needs, I don't think it's a surprise to see them trying to squeeze out every penny out of AMD they can.

 

[Genx87]

That is a good way of putting it.

While the WSA is really costing AMD an arm and a leg in present times, what is really hurting AMD's future is the exclusivity requirement (AMD must use GloFo or pay huge penalties for an exclusivity waiver on a quarterly basis, as they are doing for all APU's fabbed at TSMC).

GloFo is what now, nearly 2yrs behind TSMC in getting 28nm into volume production?

If AMD were free to conduct their business as a fabless company, picking the foundry that had the best technology, prices, and time schedule that fit AMD's needs then AMD's future would be of their own making.

But as it stands now it is not, they have an exclusivity contract that stands until 2024

Given GloFo's track record, I don't see AMD surviving until then in the face of all their fabless competitors who are able to freely choose their foundry partner.

Couldnt they get those contracts nullified through bankruptcy? Or maybe even show that Hector Ruiz conspired to fuck the company? Isnt he the CEO of GF now? Seems like a huge conflict of interest to force a company he was on the outs with to pay his new company.

 

[CHADBOGA]

Couldnt they get those contracts nullified through bankruptcy? Or maybe even show that Hector Ruiz conspired to fuck the company? Isnt he the CEO of GF now? Seems like a huge conflict of interest to force a company he was on the outs with to pay his new company.

Hector had to resign from GF, once it became public about his involvement with a person who got prosecuted for Insider Trading.

 

[Idontcare]

Perhaps one day AMD fans will finally be able to be honest in assessing the role that Hector Ruiz played in destroying AMD.

Hector gave himself a special multi-million dollar bonus for completing the sale of AMD's fabs and then arranged for himself to be the CEO of the newly purchased fabs, where he could continue to rake in the millions.

What a hero. :awe:

True. You can't blame Hector for being Hector though, IMO, he was true to his character till the end.

He had a huge obvious conflict of interest in negotiating the deal, and everyone on Wall Street knew this was the case but they relied upon the checks-and-balances that a Board of Directors is intended to provide so as to keep a CEO's conflict of interest at bay.

Hector having his way with AMD's shareholders equity was to be expected, absolute power corrupts absolutely, but the real question here is where was the BoD in all this? And why are they held accountable for the lapses in their fiduciary responsibilities?

But this is business risks, right? It's easy to put the blame on GLF and forget some very bad decisions AMD did in the past. Had AMD somehow got the money to implement IBM 32nm SOI process on AMD-owned fabs, they would have much of the same problems GLF faced, but nobody to foot the bill like ATIC/Mubadala did with the GLF venture. The tie-up to IBM's fortunes was made in AMD's golden era, and was an exclusive responsibility of their BoD, yet another incompetent decision.

The WSA is a consequence of the incompetent management that is becoming an AMD tradition and the tough position they were for a negotiation with their only suitor.

Absolutely spot on. It isn't like AMD went looking for this contractual boa constrictor, they had no choice but to agree to the terms because the direness of their situation.

When incompetent management leads a company to near ruination, it should be of little surprise that the same incompetent management then makes additional business decisions of comparable incompetence.

These guys were self-consistent, which is a desired trait in management, but they consistently made poor decisions which is an undesired trait in management.

But the results, not surprising and not all that avoidable once the chain of events were set into motion with the acquisition of ATI instead of going for the stronger candidate (Nvidia).

Just as, equally unsuprising, Nvidia's Jensen wasn't about to agree to a merger with AMD if it left intact the existing incompetent management chain. Jensen saw a bad egg a mile away, BoD didn't, AMD shareholders didn't, but ATI shareholders (if they sold their converted stock) made a killing.

Couldnt they get those contracts nullified through bankruptcy? Or maybe even show that Hector Ruiz conspired to fuck the company? Isnt he the CEO of GF now? Seems like a huge conflict of interest to force a company he was on the outs with to pay his new company.

Questionable. You can't just duck into a chapter11 situation to nullify contracts that you entered into in good faith but decided you didn't want to have to honor them just because they are unfavorable to your bottom line. A bankruptcy judge would not find that agreeable.

If AMD were forced into bankruptcy for your standard "we are plumb broke" then one of the outcomes of the bankruptcy proceedings might include a reorganization of existing contracts but usually that is only done if extreme hardship is proven. Bankruptcy is supposed to be about re-organizing your debt, although contracts do get renegotiated all the time.

 

[Olikan]

- Miracle R&D. Unlikely, but possible. Maybe Intel will do some crazy x86/ARM mashup that will utterly face plant, giving the tried and true AMD designs to go through

not really a miracle, it's kinda common for top companies to invest in something already proven, and then the competition brings something disruptive in the market...

kodak and digital camera, GM and small cars...and so on

intel was all about IPC, IPC and IPC....
AMD tryed to be disruptive with the APUs or MOAR CORES, but so far have failed...
might had worked, if bulldozer was launched in 2009...as originally planned

 

[mrmt]

Couldnt they get those contracts nullified through bankruptcy? Or maybe even show that Hector Ruiz conspired to fuck the company? Isnt he the CEO of GF now? Seems like a huge conflict of interest to force a company he was on the outs with to pay his new company.

If you could prove that Ruiz conspired to fuck the company, then yes, you most likely could.

But, did he? It was AMD BoD that tied up to IBM, which in turn generated the 32nm snafu. It was AMD BoD that wrecked the company's balance sheet to buy a company for an insane amount of money, money they will never recover. It was the same AMD BoD that slowed down their R&D investment because they preferred to milk their customers a little more...

When you have a BoD with this huge track record of asinine decisions, it's a very tough sell the idea of Ruiz being an evil genius that meticulously entangled AMD in GLF's spider web. It's not to say that he was honest or that he didn't bend something here and there to make things a little more comfortable for him at GLF, but even here he failed.

In the end, instead of a relationship where GLF is in a more comfortable position than AMD, Ruiz architected a venture where the two partners are together by the virtue of legal bindings, and both of them have no sustainable future.

 

[mrmt]

might had worked, if bulldozer was launched in 2009...as originally planned

Or hastened AMD demise. FX 8150 is the result of two years of work and a die shrink over the 2009 Bulldozer that got canned by Dirk, and even so it could barely compete with Thuban at 45nm node, and Thuban was essentially the ancient A64 core bolted with new instructions and die shrunk. A 6-core 45nm would have been a disaster of epic proportions, something not worth to launch even as a very nichy product to showcase the architecture, in other words, the MPU equivalent of a heart attack.

 

[notty22]

This is a dire look at AMD 2013. He discusses the gpu strategy of packaging AAA games with AMD gpu's.
http://www.insidermonkey.com/blog/i...amd-this-underdog-is-just-another-dog-104690/

 

[Olikan]

Or hastened AMD demise. FX 8150 is the result of two years of work and a die shrink over the 2009 Bulldozer that got canned by Dirk, and even so it could barely compete with Thuban at 45nm node, and Thuban was essentially the ancient A64 core bolted with new instructions and die shrunk.

yep...that's why i carefully used the word, "might"

In the end, instead of a relationship where GLF is in a more comfortable position than AMD, Ruiz architected a venture where the two partners are together by the virtue of legal bindings, and both of them have no sustainable future.

it would be a big irony is GLF end up buying AMD...

 

[mrmt]

it would be a big irony is GLF end up buying AMD...

Two rocks together do not float.

 

[Homeles]

Two rocks together do not float.

What if they're pumice? :awe:

 

[joshhedge]

What if they're pumice? :awe:

Actually made me chuckle.

This could be part of the plan for the owner of GloFo, you never know!

 

[mrmt]

Actually made me chuckle.

This could be part of the plan for the owner of GloFo, you never know!

The main AMD assets are:

1) The relationships with the agents on the market

2) Their R&D department

3) IP

Of those, 1) and 2) are being greatly suffering attrite by the cuts, lack of resources, and bad results. 3) will lose value as well, because as 2) gets pounded the R&D output is reduced. Also most of the IP is impaired by the license agreement with Intel.

AMD current situation has no upside for GLF even in the context of an acquisition, because the further the situation deteriorates, most of the assets GLF would need to make money once it completes the acquisition will deteriorate too.

Which brings me to the next point. If Mubadala or ATIC were interested in acquire AMD and pick a fight with Intel, both in legal and financial arenas, they would have done so well before, when the chances (and the costs) to turn AMD around would be lower and time to recover investments shorter.

 

[mrmt]

http://www.amd.com/us/press-releases/Pages/Press_Release_113741.aspx

AMD Completes ATI Acquisition and Creates Processing Powerhouse
—Focused to Drive Innovation, Choice and Growth in the Industry with First Platform Solutions in 2007— —Unveils “Fusion” Initiative for Industry’s First Integrated CPU/GPU Silicon Solutions—

SUNNYVALE, CALIF. -- 10/25/2006 -- AMD (NYSE:AMD) today announced the completion of its approximately $5.4 billion acquisition of ATI Technologies Inc. Combining the complementary strengths of the two technology leaders, the new AMD opens for business as a processing powerhouse committed to driving innovation, choice and growth in the technology industry. With approximately 15,000 employees, the company merges AMD’s technology leadership in microprocessors together with ATI’s leadership in graphics, chipsets and consumer electronics.

“Today marks a historic day for our employees, our partners and our customers as we officially welcome ATI into the AMD family,” said AMD Chairman and CEO Hector Ruiz. “On day one, we are delivering a winning set of complementary technologies, igniting a new level of innovation and continuing to champion choice for the industry. Thanks to the strength of our talented employees, the new AMD now has a full range of intellectual property (IP) in microprocessors, graphics, chipsets and consumer electronics to deliver open platforms and integrated solutions. In the near term, customers gain a new level of choice, and in the long term, we believe the possibilities for innovation are truly limitless.”

Transaction Details
Under the terms of the transaction, AMD acquired all of the outstanding common shares of ATI for a combination of approximately $4.3 billion in cash and 58 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on October 24, 2006. All outstanding options and restricted stock units (RSUs) of ATI were assumed. The value of the ATI acquisition of approximately $5.4 billion is based upon the closing stock price of AMD common stock on October 24, 2006 of $20.32 per share and excludes the value of assumed equity awards. AMD financed the cash portion of the transaction with a combination of cash and new debt. AMD obtained a $2.5 billion term loan from Morgan Stanley Senior Funding, Inc., which, together with combined existing cash, cash equivalents, and marketable securities balances of approximately $1.8 billion, provided full funding for the transaction.

AMD announced the final pro-ration applicable to ATI common shares in the acquisition. The total consideration to be paid for each common share, based on the Parent Closing Stock Price (as defined in the Plan of Arrangement, as amended), is approximately $21.36. The final election results indicate that pro-ration is as follows:
ATI shareholders who elected to receive cash will be entitled to receive, for each common share for which a valid cash election was made, approximately US $18.59 in cash plus approximately 0.1245 of a share of AMD common stock;
ATI shareholders who elected to receive stock will be entitled to receive, for each common share for which a valid stock election was made, 0.9596 of a share of AMD common stock; and
ATI shareholders who did not make a valid election will be entitled to receive, for each share for which no valid election was made, 0.9596 of a share of AMD common stock.
Pro-ration was necessary because the cash consideration elected to be received exceeded the amount of cash available in the acquisition. Any fractional shares will be paid in cash.

Planning to Deliver Integrated Platforms in 2007
Customers should benefit from AMD’s and ATI’s combined platform development and technical support teams, which will be co-located in Taipei and Shanghai. Combined with the existing Austin and Toronto locations, these sites offer research and development and support to provide customers with a complete solution for optimized platform development.

AMD plans to deliver a range of integrated platforms in 2007 to serve key markets, including: commercial clients; mobile computing; and gaming and media computing. PC users will benefit from innovations intended to extend battery life on the next-generation AMD Turion™ 64 mobile technology-based platform and enhancements to the AMD LIVE!™ digital media PC platform that will enable users to get more from their favorite photos, music, and movies. AMD believes that these integrated platform innovations will bring customers improved system stability, better time-to-market, increased performance and energy-efficiency and overall, an enhanced user experience.

“By driving innovation and integration in processing, especially in graphics, the new AMD has the potential to empower breakthrough computing experiences for users of Windows® Vista,™” said Jim Allchin, Co-President of Microsoft’s Platforms & Services Division. “We are excited by the potential benefits that this union can bring to enhance the Windows Vista experience.”

AMD also sees an opportunity to deliver processing solutions to the growing consumer electronics market. The company intends to leverage ATI’s strength in the consumer market by pursuing new opportunities to invest in the consumer electronics and high-end discrete graphics markets. With leading technology and customer relationships, AMD is positioned to address digital convergence by leveraging critical IP to create new innovations and devices that facilitate end-to-end content delivery and connectivity to improve end-user experiences.

CPU/GPU Silicon “Fusion” – Another Industry First for Customers
AMD plans to create a new class of x86 processor that integrates the central processing unit (CPU) and graphics processing unit (GPU) at the silicon level with a broad set of design initiatives collectively codenamed “Fusion.” AMD intends to design Fusion processors to provide step-function increases in performance-per-watt relative to today’s CPU-only architectures, and to provide the best customer experience in a world increasingly reliant upon 3D graphics, digital media and high-performance computing. With Fusion processors, AMD will continue to promote an open platform and encourage companies throughout the ecosystem to create innovative new co-processing solutions aimed at further optimizing specific workloads. AMD-powered Fusion platforms will continue to fully support high-end discrete graphics, physics accelerators, and other PCI Express-based solutions to meet the ever-increasing needs of the most demanding enthusiast end-users.

“With the anticipated launch of Windows Vista, robust 3D graphics, digital media and device convergence are driving the need for greater performance, graphics capabilities, and battery life,” said Phil Hester, AMD senior vice president and chief technology officer. “In this increasingly diverse x86 computing environment, simply adding more CPU cores to a baseline architecture will not be enough. As x86 scales from palmtops to petaFLOPS, modular processor designs leveraging both CPU and GPU compute capabilities will be essential in meeting the requirements of computing in 2008 and beyond.”

Fusion processors are expected in late 2008/early 2009, and the company expects to use them within all of the company’s priority computing categories, including laptops, desktops, workstations and servers, as well as in consumer electronics and solutions tailored for the unique needs of emerging markets.

About AMD
Advanced Micro Devices (NYSE: AMD) is a leading global provider of innovative processing solutions in the computing, graphics and consumer electronics markets. AMD is dedicated to driving open innovation, choice and industry growth by delivering superior customer-centric solutions that empower consumers and businesses worldwide. For more information, visit www.amd.com.

 

[desura]

I'm trying to find how bad the acquisition of ATI was. How much a premium did they pay? What would have been an "appropriate" value to pay for ATI?

 

[RoarTiger]

This is a dire look at AMD 2013. He discusses the gpu strategy of packaging AAA games with AMD gpu's.
http://www.insidermonkey.com/blog/i...amd-this-underdog-is-just-another-dog-104690/

Article is spot on regarding AMD current troubles but I think any objective AMD outlook commentary should include their console wins. Not sure the author could justify not incuding at least a mention and expect to be taken seriously.

Excluding FX, AMD seems to have nice tech this year. The problem is that design wins are too few in mainstream PC/laptops. Unless some new player Vizio? devotes effort to producing competitive AMD product for consumers AMD isnt going anywhere. The major manufacturers wont help at all as Dell will ignore them and HP and Lenova will only allocate them to budget systems with no promotion. Asus, MSI et al do not promote enough to help AMD even if they include them in non budget units. AMD is in a very bad place and tech alone will not help get them out.

Only comment I will add is that I find amusing is that AMD produces a crap desktop CPU line (FX) and gets crucified repeatedly over a bad product in a dieing market while Nvidia produces an awful CPU line (Tegra) in a growing market and still receives praise. Neither deserves any design wins for these product lines thanks to mediocre performance and huge power issues, but I wonder why the different treatment.

 

[Olikan]

I'm trying to find how bad the acquisition of ATI was. How much a premium did they pay? What would have been an "appropriate" value to pay for ATI?

Advanced Micro Devices Inc. acknowledged Wednesday it overpaid in its $5.6-billion US acquisition of Canadian graphics chip maker ATI Technologies Inc., adding to the deepening financial woes of the slumping semiconductor company.
AMD's final purchase price for ATI included a $3.2-billion allocation for goodwill, nearly three times the value of product technology that ATI had already developed and was working on in its laboratories, according to AMD's regulatory filings.

http://www.cbc.ca/news/technology/story/2007/12/12/tech-amd.html

don't forget to say "holy cow"

 

[mrmt]

I'm trying to find how bad the acquisition of ATI was. How much a premium did they pay? What would have been an "appropriate" value to pay for ATI?

To pay in cash? Using a DCF model, probably a fourth to a third of what was paid at the time. But how can ATI management justify to its shareholders that you are selling your company for less than half the price at the stock exchange? The stock exchange valuation for ATI was out of touch with reality.

That said, AMD also had an out of touch valuation, and almost all AMD value was from future results, not in the balance sheet, which was *very* weak.

So how should they have done if they really wanted to buy ATI?

When you are doing M&A, and you have two unrealistic valuations to marry, there is a simple strategy. You value each asset as a proportion of the other and work with the shareholders to get a deal involving stock payments. You can pay the other company all in stock, stock and cash, or make a merger combining the two entities. Deal done, you structure the stock swap, who wants out liquidates the position at the exchange for market prices, who stays keeps the unrealistic value. 0 strain on the balance sheet on both sides, just fees for banks and consultants.

All stock deals aren't common, much less popular, but stock/cash or mergers are fairly trivial. The problem with merger is that you bring on board a lot of the shareholders of the other side. The corporate governance mechanisms must be carefully crafted because now there will be more people giving orders, and more shareholders to answer. AMD thought that to share management power and deal with those governance issues were not worth 5.4 billion, so they decided to cash out ATI shareholders and management. And for that they had to put that huge debt burden on the weak balance sheet. This is what effectively threw the company in the crisis management mode that persists until now.

To sum up, the problem wasn't paying 5.4 billion for ATI, but paying 5.4 billion in cash AMD didn't have.

 

[frozentundra123456]

This is a dire look at AMD 2013. He discusses the gpu strategy of packaging AAA games with AMD gpu's.
http://www.insidermonkey.com/blog/i...amd-this-underdog-is-just-another-dog-104690/

I quit reading when he said the PC is obsolete. I would not accept anything said by someone who makes such an obviously biased and inaccurate statement. It certainly is not growing rapidly, but it is far from obsolete.

 

[notty22]

I quit reading when he said the PC is obsolete. I would not accept anything said by someone who makes such an obviously biased and inaccurate statement. It certainly is not growing rapidly, but it is far from obsolete.

I read the article, can't find that comment?


edit: Ah, I use adblock in firefox, and didn't see that, under the page break.
In IE ,I can see it. It seems to be a different article /teaser.

 

[Ajay]

And GLF isn't in a nice position once you step out of the ppt land. They are slipping in the foundry race, they could get no flagship MPU company to manufacture with them, and they still have to foot a huge CAPEX bill in the next years. Given their money needs, I don't think it's a surprise to see them trying to squeeze out every penny out of AMD they can.

Yeah, GFL is now claiming that they are bigger that UMC, even though they were put over the top by getting payed for fewer wafer starts as per the WSA. Life is good on fantasy island.

To sum up, the problem wasn't paying 5.4 billion for ATI, but paying 5.4 billion in cash AMD didn't have.

This marks the second excellent summary of events in this thread, particularly for folks like me who only know enough about corporate finance to be dangerous.

Grazie mille!

 

[Ajay]

That would trigger covenants on the license agreement with Intel, on the issued debt *and* with GLF (GPUs soon to be part of the WSA too) so what is a 800 million soon becomes a 2.8 billion + litigation with Intel and your foundry partner + whatever money AMD needs for restructuring.

How soon? Are AMD GFX going to be stuck on 28nm while NV moves to 20nm?!!

 

[mrmt]

How soon? Are AMD GFX going to be stuck on 28nm while NV moves to 20nm?!!

Not disclosed. 2015 probably, as they need some 18-24 months to backport whatever they had scheduled for tsmc 20nm to GLF. And no stacked RAM for them, they'll be stuck with GDDR5 for the foreseeable future.

 

[Homeles]

Not disclosed. 2015 probably, as they need some 18-24 months to backport whatever they had scheduled for tsmc 20nm to GLF. And no stacked RAM for them, they'll be stuck with GDDR5 for the foreseeable future.

That seals it. Was nice knowing you, AMD.

 

[Sleepingforest]

I know this will seem exceptionally stupid to some, but what does shrinking the die actually do for the chip? Does the shrinking itself intrinsically improve the chip? What is actually shrinking?

In other words, what is crippling about staying behind?