Advanced Micro Devices, Inc.
) recently completed an agreement to sell and lease back its Lone
Star Campus to an affiliate entity of real estate investment
company, Spear Street Capital.
The agreement also includes a clause according to which AMD
will sublease the property to Lantana HP, Ltd. for 12 years, with
an extension option to continue its operations on the Lone Star
The company generated approximately $164 million in cash from
the transaction, which will be reflected in the company's first
quarter 2013 financial statements when reported on Apr. 18, 2013.
AMD also expects to record a special charge of approximately $50
million, primarily related to the difference between the sale
proceeds and the carrying value of the property.
AMD has a huge debt balance and has been suffering from the
slowdown in the global PC market. The debt also includes $225
million due to be paid to Globalfoundries in the first quarter of
2013. Though we do not expect the cash inflow from the campus
sale to take care of all its current financial woes, it can
provide much-needed support to the company, which is seeing its
cash reserves shrink. AMD's cash reserves came down to $1.0
billion at the end of Dec 2012 from $1.77 billion at the end of
The sale is yet another effort by the company to solve its
persistent money problems by working on its strategy to reduce
investments and capital in non-core parts of the business,
including real estate. Late last year, the company announced a
restructuring plan where it cut 14% of its global workforce in
order to reduce operating costs.
We believe that the weak computer market, strong competition
), heavy losses, and the company's limited success in the
emerging mobile device market have forced it to take such
AMD is the world's second largest maker of microprocessors but
it has been losing ground to its larger rival, Intel. The company
reported a disappointing fourth quarter with net sales of $1.16
billion, down 31.7% year over year. AMD's GAAP net loss was
$473.0 million or 63 cents per share in the quarter.
Worldwide PC sales have been stagnant in recent times while
smartphones, tablets and other mobile devices experienced strong
growth. We believe that in order to contend with rivals like
), AMD needs much more resources to invest into newer business
areas, site consolidations and Internet-related opportunities
(mainly cloud computing).
Currently, Advanced Micro has a Zacks Rank #3 (Hold). Another
semiconductor stock that is worth considering is
) carrying a Zacks Rank #2 (Buy).
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