In yet another attempt to cut costs,
Advanced Micro Devices Inc.
) announced that it would reduce its fourth quarter and 2013
wafer purchase commitment with GlobalFoundries.
GlobalFoundries, which manufactures integrated circuits (ICs)
for semiconductor companies such as
) was formed in 2009 by divesting AMD's manufacturing unit. In
2010, it merged with Singapore-based Chartered Semiconductor
Manufacturing Co. Ltd. to become the third largest foundry in the
AMD will reduce its expenditure on wafer purchases to $115.0
million for the fourth quarter and $1.15 billion for fiscal 2013.
However, AMD will have to fork out a termination payment of
$320.0 million, which will be spread over the next four
The global PC market is showing no sign of recovery as the
rising popularity of
) iPads and
) Android devices continue to cannibalize sales. Handheld devices
are the preferred choice now, since most routine work can be done
with them. On the macro front, the Chinese and European economies
have slowed down and the U.S. is fighting its own Fiscal Cliff
dilemma. Hence, global PC demand may decline further in 2013.
Previously, AMD had cut roughly 400 jobs from its Austin
workforce in order to reduce operational costs. It is also
planning to sell its 58-acre Austin, Texas site and lease back
the same from the buyer in an attempt to generate funds to pay
some portion of its debt and diversify its business. It is
expecting to raise $150.0 million to $200.0 million from the
The company had a debt of $2.035 billion at the end of the
third quarter. It also includes a due of $225.0 million to
Globalfoundries in the first quarter of 2013. Hence, AMD is
taking all sorts of measures to generate more cash and pay off
its surging debt.
AMD's revenues in the third quarter came in at $1.27 billion,
down 10.2% sequentially and 24.9% year over year, more or less in
line with its revised guidance of a 10% sequential decline (at
the mid-point). Revenues were also in line with consensus
expectations of $1.28 billion. The Graphics business generated
27% of its sales and was down 6.8% sequentially and 15.1% from
the year-ago quarter.
The weak third quarter performance and fourth quarter guidance
sent estimates plunging, which had the Zacks Consensus Estimate
for the fourth quarter and fiscal years 2012 and 2013 dropping
significantly lower. As a result, AMD shares carry a Zacks Rank
#5 (Strong Sell).
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