Who steps up to the plate if AMD tanks?

[biostud]

http://theinquirer.net/?article=42549

BEFORE, , during and after the latest IDF, speculation went wild on what would happen to AMD over the next six months or so.

With Intel Penryns running around aplenty, and Barcelona/Phenom still not out of the door in a competitive way, all the hacks, analysts and the related communities discussed and evaluated the options and input from various sources, more or less close to the beleauguered green company.

Prior to IDF, I also went around the Far East, chatting not just with IBM and Samsung, but also with our beloved Taiwanese key OEM partners. Here are the "speculative execution of AMD" considerations as of now:

Option 1 AMD continues as it is, comes out of the doldrums, creates internal $$$ to repay the mounting debt, and Hector Ruiz becomes the new Steve Jobs-like IT hero figure.

Option 2 IBM decides it is the time, and buys AMD as it is, lock stock and barrel. Benefits? It gains control of its own competitive X86 platform, with potential future socket compatibility with POWER7 for cross-platform shared infrastructure, sets up truly serious competition against Intel. Headaches? Well, what to do with the current management, and why should IBM bother repaying all those debts.

Option 3 Samsung comes in, figuring out it should continue where it stopped in 2001 after the Alphacide. Samsung did try to get into the worldwide 64 bit CPU market then with Alpha, and could do it now again with AMD. Will it happen? Hardly, in my mind - Uncle Sam might not look favourably to ceding the control of this technology to a Far Eastern company, and even if that hurdle is jumped, I could imagine a management revamp chaos worse than in the IBM case - the corporate cultures of these two are so different, and yes I know them both for years.

Option 4 Red China will splash the cash. No way, Jose: Uncle Sam will particularly disallow this one, to my utter dismay - the Chinese could at least bring the prices down tremendously.

Option 5 A private equity fund consortium rescues AMD at a discount and dumps most of the existing management, minus Dirk Meyer. Such funds do look closer at the dollars and cents these days after the recent financial meltdowns, and well, Far East real estate looks like a better money pouring deal to me right now. On the other hand, private funds could also be a hidden front for Intel itself to indirectly invest in AMD and keep it alive - and controlled - to avoid any monopoly problems if the greenies really collapse.

Option 6 Ever thought of ST Micro, the leading semicon house in the beloved EU? To it, an acquisition and salvage of AMD could mean that "Europe again has control of its own CPU & GPU technology", something that hasn't happened since the Transputer in the UK and Hyperstone in Germany.

Well, it's got the ca$h and the fabs - plus AMD's key fab is anyway in EU - but catastrophic future company management prospects beckon resembling a multilingual long winded soap opera? On the other case, the "heroes" who arrange the deal within ST/EU could simply be rewarded by a promotion elsewhere to jump ship before the cracks starts showing.

And so to Option 7 IBM. Hold on, I already mentioned IBM - no, this is a different scenario. Let the imagination fly.

Someone drives AMD into the ground, bankrupting it. IBM Semiconductor comes to "rescue", supported by the US Government as the only true American party able - and allowed - to do so.

They take the AMD team, fabs and IP stack, but AMD as a company disssolves, and shareholders lose whatever $$ they still have in there. Then the big "New IBM Semi" gets spun off by the parent company at a huge profit as the new No 2 PC CPU supplier and a true competitor to Intel (see Option 2).

 

[SniperDaws]

i doubt very much AMD are going to crash and burn, the Core 2 duo was/is a minor hiccup for them, they will be crowned the best again, just like Nvidia did with the 5 series. Its Ati and AMD that have dropped the bollock, but 2008 might be nivida and Intels turn to take a dive, lets hope so because its the battle that keeps us all getting better products.

EDIT: Ewww i just read the Microsoft bit *shudder*.

 

[soonerproud]

Originally posted by: Phynaz

Originally posted by: soonerproud
IBM could very well buy out AMD. In fact IBM is already partners with AMD on a lot of the technology AMD uses. If IBM were to buy out AMD it would create a technology power house that would really give Intel a run for it's money. Imagine if IBM successfully integrated RISC and x86 into one processing unit. I suspect IBM has a lot more to gain from the buyout than Samsung does.

1. IBM already has an x86 license, so they don't need AMD.

2. Why would IBM want to get into the commodity cpu business, when they are selling off all their commodity businesses?

1. They could use some of the exclusive licensing deals that AMD has with Intel. They also might want some of the patented technology that AMD has in their systems. There is a lot of money to be made in the Desktop and Server processor market. If they combine both AMD's and their own technology they could give Intel a run for their money. (Lets also remember that IBM hates Intel and just might do it to get back at them.)


2. Are they selling off the power pc processor? They currently supply for the commodity cpu business in both the Xbox 360 and the PS3. They also might want to get into the graphics end by obtaining ATI's technology which directly impacts the markets they already sell to.

 

[Nemesis 1]

This question your asking is a hard one . If AMD sell out or someone else gets more than a certain% stake in the company . Or if AMD outsources more than 20% of sales . Intel can pull their X86 license. Per their settlement agreement in another case.


As far as monoply go . Their are other cpu makers in the world. One must remember X86 is the exclusive properity of intel . Intel would never allow samsung to have x86 license or IBM . If AMD breaks its agreement with Intel . Look for NV to get an X86 license.

 

[DrMrLordX]

Originally posted by: keysplayr2003
Is AMD an American based company? Yes. Will the US govt. allow the Chinese govt to buy AMD? No. Why not? To prevent Intel from becoming a monopoly. If AMD is sold at all, the number 1 candidate would be IBM. At least in the govt. eyes.

Honestly, I don't see that happening. As long as AMD continues selling products in the American marketplace, Intel is not a monopoly, regardless of who owns AMD.

Furthermore, if China and/or a Chinese front company bought a 25-30% share in the company in a coalition buyout, it might not raise as many flags as if China picked up a 51% or better share.

Originally posted by: Nemesis 1
This question your asking is a hard one . If AMD sell out or someone else gets more than a certain% stake in the company . Or if AMD outsources more than 20% of sales . Intel can pull their X86 license. Per their settlement agreement in another case.

.

You wouldn't happen to know what %, would you?

 

[sonoran]

Originally posted by: Nemesis 1
if AMD outsources more than 20% of sales . Intel can pull their X86 license. Per their settlement agreement in another case.

I doubt that agreement is worth the paper it's written on. If Intel tried to pull the x86 license the DOJ would be all over them for anticompetitive trade practices. Doesn't matter what some civil agreement says.

One other small gotcha - Intel royally screwed the pooch by letting AMD develop the x86-64bit extensions that got adopted by Microsoft. If Intel pulled x86 licensing from AMD, AMD could presumably fire back by pulling x86-64 licensing from Intel. Obviously, neither side can afford for this to happen.

No matter how much doom and gloom is painted here, AMD is not going anywhere soon.

 

[lopri]

1. Samsung won't buy AMD.
2. If Samsung buys AMD, it will not be to compete against Intel in x86 market.

Of course in my opinion.

 

[Nemesis 1]

Originally posted by: sonoran

Originally posted by: Nemesis 1
if AMD outsources more than 20% of sales . Intel can pull their X86 license. Per their settlement agreement in another case.

I doubt that agreement is worth the paper it's written on. If Intel tried to pull the x86 license the DOJ would be all over them for anticompetitive trade practices. Doesn't matter what some civil agreement says.

One other small gotcha - Intel royally screwed the pooch by letting AMD develop the x86-64bit extensions that got adopted by Microsoft. If Intel pulled x86 licensing from AMD, AMD could presumably fire back by pulling x86-64 licensing from Intel. Obviously, neither side can afford for this to happen.

No matter how much doom and gloom is painted here, AMD is not going anywhere soon.

If what your saying is true why isn't MS source made available to other companies. X86 is no differant than MS source. As I said their are other Cpu makers in the world. So no monoply exist. Also anything AMD uses in x86 becomes Intels properity also. AMD can not stop intel from using it. In additions to x86 Intel can use for all time. Same as AMD. The problem is AMD is licensing X86 from intel not the other way around.

Further more MS had more to do with AMD 64 than many are willing to admit.

AMD can't transferr x86 linense to another company. Only Intel can do that.

 

[Greenman]

This was a lot more information and insight than I would have thought possible. Well done gentlemen, and thank you.

 

[Viditor]

Originally posted by: keysplayr2003
Hehe, check this out. INQ. Link with 6 or 7 possibilites being considered the world over.

Viditor, would it be better for you if AMD did tank? You mentioned you have a large amount of stock in AMD, but is it worth more to you if AMD is dissolved? I am just curious.

To answer the question first, not even close...but dissolving the company is the most farfetched of the scenarios (even a buyout is far more likely, and that's less likely than getting hit by lightning right now). The book value (~dissolve value) of AMD last quarter was $8/ share.

As to the Op-Ed piece from The Inq, there are WAY too many holes in it...

1. If AMD were weakened to the point of becoming a real take-over target by China or Samsung, the US Govt would have no problem with an OK (why would they as AMD's marketshare would be insignificant at that point and it increases foriegn investment/money coming into the US).

2. IBM (from everything I hear and see) is actually trying to slowly get out of the CPU business. I am told that they are attempting to evolve into an R&D and process development company for semiconductors. For example, when was the last IBM Fab built?
I don't see them reversing course at this point and buying up 2 new Fabs...(Phynaz is dead right about that one)

3. Intel secretly investing into AMD to keep it propped up and avoid "monopoly problems"?
I thought this one was VERY amusing...
First, what's a "monopoly problem"? Monopolies aren't illegal...and a monopoly doesn't mean you own 100% of a sector, it means (at least in anti-trust law) that you own enough of a sector that you can dictate to purchasers because of your market dominance.
For example, Microsoft has been ruled a monopoly by every court in the world, but they certainly don't own 100% of the market.
So, by the legal definition, Intel is already a monopoly (though this hasn't been tested in court yet)...but the only problem for them there is that they have to be careful that they don't use their monopoly to put AMD out of business. There really are no other legal reprocussions, so spending money to "prop AMD up" is just silly...

KingGheedora

What actually happens if the company "crumbles overnight"

Companies don't actually crumble or dissolve per se...they can declare bankruptcy (which means that stockholders get paid what's left after all bond holders and debts are paid), or they get bought out (which means that the take-over company usually pays stockholders a nice premium, usually in a mix of cash and shares in the company taking over). Obviously the stockholders have the last say on which direction it goes, barring a catastrophic event (like a Fab being destroyed or a huge misappropriation of funds).

sgrinavi

Even if AMD goes away and no one picks up the slack then , don't you think that Intel will want to keep their infrastructure intact and keep selling at their current rate? If they are set up to process x units, they do not want to take that down and will adjust prices to keep moving inventory...

Not a chance...price is controlled by supply and demand. If AMD went under, then worldwide supply would drop by 22.9% (AMD's unit marketshare last quarter), but demand would remain...it also means that Intel would no longer need to carry on a Price War. In other words, Intel could quickly return to pre-Athlon margins and actually increase their shipments at the same time.

Nemesis

This question your asking is a hard one . If AMD sell out or someone else gets more than a certain% stake in the company . Or if AMD outsources more than 20% of sales . Intel can pull their X86 license. Per their settlement agreement in another case.

While this is quite true, the purchasing company also has the right to pull all of the AMD patents that Intel uses if it occurs (which means they couldn't produce any of their chips either). That agreement is very much a two-edged sword...

 

[Nemesis 1]

Viditor

While this is quite true, the purchasing company also has the right to pull all of the AMD patents that Intel uses if it occurs (which means they couldn't produce any of their chips either). That agreement is very much a two-edged sword...


Please a link to that part of the agreement . I would very much like to read. If your talking about X86 your very much mistaken I believe.

 

[Nemesis 1]

Repost

 

[Viditor]

Originally posted by: Nemesis 1
Viditor

While this is quite true, the purchasing company also has the right to pull all of the AMD patents that Intel uses if it occurs (which means they couldn't produce any of their chips either). That agreement is very much a two-edged sword...


Please a link to that part of the agreement . I would very much like to read. If your talking about X86 your very much mistaken I believe.

It doesn't have to be part of the contract as it's a basic element to Contract Law called Consideration.

While Intel does retain the right to cancel the contactual agreement should AMD sell a majority share of the company, by cancelling the contract they are removing all consideration...and the new company (who would then own all of the patents previously owned by AMD as they are an asset of the company) would no longer be bound to allow Intel to use them.

 

[Nemesis 1]

That is not how stipulated law works and you know it.

 

[cyborgtrader]

Very interesting topic! As a financial trader who uses politics as well as financial market tools, do not see any foreign government buying AMD. The US Govt simply would not allow a transfer of such an important technology. Other choices besides being bought out by an American company would be a massive infusion of capital by another big player or Microsoft. Back in the 90's when Apple was going belly up, Microsoft bought a ton of the stock to keep the technology from going overseas and we all know what fierce competitors Apple and Microsoft are. The Govt will allow a sale of older obsolete tech to transfer, but that's about it.

My pick to buy AMD out would be: A private equity group(after market turbulence subsides), IBM. Real long shot would be Microsoft. With AMD trading at $7-8 billion market cap, would be peanuts but given Gates disdain for hardware it's just a long shot to me.

 

[Viditor]

Originally posted by: Nemesis 1
That is not how stipulated law works and you know it.

Huh? What does "stipulated law" have to do with anything?

"stipulation n. an agreement, usually on a procedural matter, between the attorneys for the two sides in a legal action. Some stipulations are oral, but the courts often require that the stipulation be put in writing, signed, and filed with the court"

This is part of a settlement and after that superceded by a cross-licensing contract...

 

[Viditor]

Originally posted by: cyborgtrader
Very interesting topic! As a financial trader who uses politics as well as financial market tools, do not see any foreign government buying AMD. The US Govt simply would not allow a transfer of such an important technology.

I disagree...as a trader myself (as well as a developer in technology) who now lives overseas and deals with these scenarios on a regular basis, I have seen tech at this level ceded to foriegn companies quite often of late.
This is especially true as the vast majority of the manufacturing and technology for AMD already occurs outside the US (the Fabs are in Dresden, and most of the development, packaging, and testing is done in Asia).

 

[Nemesis 1]

The cross licensing agreement your referring to Had many stipulations All of which favored Intel . Or do you think Intels laywers were a bunch of law students who were not yet familiar with the real world.

 

[Viditor]

Originally posted by: Nemesis 1
The cross licensing agreement your referring to Had many stipulations All of which favored Intel . Or do you think Intels laywers were a bunch of law students who were not yet familiar with the real world.

Ummm...
1. a clause in a contract is NOT a stipulation.
2. a stipulation or a clause doesn't favour either party, it's part of the quid pro quo.
3. sorry to be blunt, mate...but Intel's lawyers aren't the ones who are making this claim.

Edit: Let me see if I can help you with the difference here...a stipulation occurs during the actual legal proceedings (I'm sure you've heard the phrase "the defense will stipulate that...", or "So stipulated").
The clauses of the contract define the conditions and considerations of the 2 parties, as well as the term of the contract.

 

[Nemesis 1]

Originally posted by: Viditor

Originally posted by: Nemesis 1
That is not how stipulated law works and you know it.

Huh? What does "stipulated law" have to do with anything?

"stipulation n. an agreement, usually on a procedural matter, between the attorneys for the two sides in a legal action. Some stipulations are oral, but the courts often require that the stipulation be put in writing, signed, and filed with the court"

This is part of a settlement and after that superceded by a cross-licensing contract...

Forgive me if I can't help but notice a conflict in these 2 statements.

 

[soonerproud]

Originally posted by: Nemesis 1
The cross licensing agreement your referring to Had many stipulations All of which favored Intel . Or do you think Intels laywers were a bunch of law students who were not yet familiar with the real world.

Do you really believe AMD's lawyers were idiots during contract negotiations and allowed all the terms to favor Intel? I highly doubt all the terms of the cross licensing agreements between Intel and AMD favor only Intel.

Contrary to what someone else previously posted, AMD does not cede it's rights to it's IP and patents to Intel in a buyout. If Intel were to pull the licensing agreement, the new owner of AMD's IP has every right to pull those from Intel effectively putting an end to X64 and other technologies. Intel is not in a position to pull that licensing agreement even if they wanted to.

 

[soonerproud]

Originally posted by: Nemesis 1

Originally posted by: Viditor

Originally posted by: Nemesis 1
That is not how stipulated law works and you know it.

Huh? What does "stipulated law" have to do with anything?

"stipulation n. an agreement, usually on a procedural matter, between the attorneys for the two sides in a legal action. Some stipulations are oral, but the courts often require that the stipulation be put in writing, signed, and filed with the court"

This is part of a settlement and after that superceded by a cross-licensing contract...

Forgive me if I can't help but notice a conflict in these 2 statements.

That is exactly what happened. AMD and Intel settled out of court after initial rulings were in AMD's favor. A part of that settlement was to enter into a cross licensing agreement. Those two statements do not conflict.

 

[Nemesis 1]

Originally posted by: soonerproud

Originally posted by: Nemesis 1
The cross licensing agreement your referring to Had many stipulations All of which favored Intel . Or do you think Intels laywers were a bunch of law students who were not yet familiar with the real world.

Do you really believe AMD's lawyers were idiots during contract negotiations and allowed all the terms to favor Intel? I highly doubt all the terms of the cross licensing agreements between Intel and AMD favor only Intel.

Contrary to what someone else previously posted, AMD does not cede it's rights to it's IP and patents to Intel in a buyout. If Intel were to pull the licensing agreement, the new owner of AMD's IP has every right to pull those from Intel effectively putting an end to X64 and other technologies. Intel is not in a position to pull that licensing agreement even if they wanted to.

Yes I do . It was intel that invented X86 not AMD. AMD was lucky to get a license from intel . In that crosslinse agreement there WERE stipulations.

Google it and read what you can find out. As far as AMD 64 goes Intel is in a better position than you might believe . Elbrus compiler for 1. Than of course if as you say were true what good is AMD 64 without X86?

Who in their right mind would buy AMD without x86 license?

 

[Viditor]

So anyway, back to the topic at hand...

Some of the reasons I was saying that AMD couldn't go under (baring a catatrophe) are:

1. The terms of their refinanced loan (acquired this quarter to cover the expensive short term loan they had for ATI) reduces their payments drastically.

2. The major buildout portion of Fab 36 is now paid for, as is a good chunk of the Fab 38 conversion

3. Their COGS (Cost Of Goods Sold) on dual core chips is drastically reduced as 80%+ are now 65nm.

4. They have an extra $700-900 Million of unearned income arriving (from the 130nm equipment sale to the Russians, and the subsidy from the German government) as well as the beginning of the income from the 90nm equipment sales.

While it's true that they still have to spend Cap-Ex money on the 45nm buildout, they are nowhere near the financial dire straights people imagine...not to mention that they have quite competitive products starting in the channel now.

 

[Nemesis 1]

Originally posted by: Viditor
So anyway, back to the topic at hand...

Some of the reasons I was saying that AMD couldn't go under (baring a catatrophe) are:

1. The terms of their refinanced loan (acquired this quarter to cover the expensive short term loan they had for ATI) reduces their payments drastically.

2. The major buildout portion of Fab 36 is now paid for, as is a good chunk of the Fab 38 conversion

3. Their COGS (Cost Of Goods Sold) on dual core chips is drastically reduced as 80%+ are now 65nm.

4. They have an extra $700-900 Million of unearned income arriving (from the 130nm equipment sale to the Russians, and the subsidy from the German government) as well as the beginning of the income from the 90nm equipment sales.

While it's true that they still have to spend Cap-Ex money on the 45nm buildout, they are nowhere near the financial dire straights people imagine...not to mention that they have quite competitive products starting in the channel now.

Come on Viditor your always doing this . On the Russian deal

Industry experts believe that the equipment will cost Angstrem about $250 - $300 million and sources close to the deal believe that the budget ?of the whole project? may increase up to $700 million in the following years.

$250-300 million . Maybe 700 million following years . MAYBE the whole deal be worth 700 million . See the differance in the real world numbers than the ones you produced.