AMD Is Selling Half Of It's Soul

S

SpoogeMonkey

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Feb 20, 2005
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I'm surprised no one has commented on this Front Page Story.

SUNNYVALE, Calif. -- April 24, 2007 --Advanced Micro Devices, Inc. (NYSE: AMD) today announced the pricing of $2 billion aggregate principal amount of 6.00% Convertible Senior Notes due 2015 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. AMD granted to the initial purchasers a 30-day option to purchase up to $200 million aggregate principal amount of additional notes to cover over-allotments.

Interest on the notes will be paid semiannually on May 1 and November 1 at a rate of 6.00% per year. Upon the occurrence of certain events, the notes will be convertible into cash up to the principal amount, and if applicable, shares of common stock in respect of any conversion value above the principal amount, based on an initial conversion rate of 35.6125 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of $28.08 per share. This initial conversion price represents a premium of 100% relative to the last reported sale price on April 23, 2007 of AMD’s common stock of $14.04 per share. Holders of the notes may require AMD to repurchase the notes for cash equal to 100% of the principal amount to be repurchased plus accrued and unpaid interest upon the occurrence of certain designated events.
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That's a scary proposition!! I wonder if any of the prospective buyers read the fine print:

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s current preliminary expectations and are subject to risks, uncertainties and assumptions, including the risk that AMD may be unable to complete the offering.
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Fine print is just a way of CYA....


I think this is not exactly what AMD wanted to do, it simply adds more debt.. We know that's not a good thing, and trust me if we know it, they know it too...

Do you think AMD is run by monkeys?
 
Monkeys or monkey? Definately not a SpoogeMonkey :D

I think this goes back to their request to double their current shares of stock 6 weeks ago. I'm just curious as to what the "occurence of certain events" is? I know they needed $2B for upgrades.

Too bad when it rains, it pours for amd. Hope this pans out for them. If not then I bet the major shareholders are going to have a coup for Hector's head.
 
..It's just a simple offering.. If I was a shareholder I'd be thrilled if the firm got all the funding it needed at 6%.

..not completing an offering is very common.. let's say I offer up to 100 million in 6% notes .. but I only find 60 million worth of buyers.. well, I was not able to complete the offering, but I sure have enough to go and do something with.

(There is often a minimum raise.. it can be the full amount (so I either raise 100m or I don't.. but the escrow company would give back the 60m if I didn't) or it can be a much smaller number (say, 5m) ..so as long as I raise more than 5m, I can use the funds.. even if I only raise 60m total instead of the 100m that was my "total offering.")

cheers,
 
But how does this all work out if they don't complete the offering? Don't they need $500M to get Merryll Lynch off their backs? I know that what they're basically doing is selling an eight year bond for full value before it matures plus interest for being able to use the money now. Las Vegas financed a lot of casinos this way using junk bonds to do it. Let's hope they don't accrue a shit load more debt in the next few years.
 
SpoogeMonkey said:
But how does this all work out if they don't complete the offering? Don't they need $500M to get Merryll Lynch off their backs? I know that what they're basically doing is selling an eight year bond for full value before it matures plus interest for being able to use the money now. Las Vegas financed a lot of casinos this way using junk bonds to do it. Let's hope they don't accrue a shit load more debt in the next few years.
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That's it. They need a steady stream of hits or "must have" hardware so they can jack up prices and get 50 to 60% returns for a most of those 8 years. Not Impossible. Honestly, I hope like hell they can or at least stay close. IMO, I think they can pull it off. That's the good news. The bad news is that AMD's next killer device will NOT come cheap.

Again, some of us warned about some of this when AMD went with Dell. Most of us know pays bottom Dollar for all of their hardware. That's why I called them the "Wal-Mart" of the tech industry. Everyone understood why Dell went with Opterons but Desktops and notebooks left some scratching their heads. They ate up a lot of AMD's Profits.
 
Lets clear a few things up here.


1. This has already been mentioned in the "AMD busted itself" thread.

2. A quarter of this goes to Morgan Stanley to repay a bridge loan.

3. Another healthy chunk of this goes to pay for call caps to prevent dillution of stocks when the bonds are converted.

4. The rate is low because they are also selling people the option to convert. Investors "pay up" for that option by reducing the financing cost of the bond.

5. If you were an equity investor in AMD this situation sucks. Essentially the conversion of these will pile on an additional 60+ million shares of AMD stock, dilluting the stock significantly, even if a cap is put in place it still will.

6. AMD is on hard times. Cash is decreasing, debt costs are increasing, profit is decreasing, manufacturing costs are increasing, future pipeline is not looking as healthy as Intel, while R&D is increasing.

In all aspects AMD is running themselves into the ground.
 
LegendKiller said:
Lets clear a few things up here.

4. The rate is low because they are also selling people the option to convert. Investors "pay up" for that option by reducing the financing cost of the bond.

5. If you were an equity investor in AMD this situation sucks. Essentially the conversion of these will pile on an additional 60+ million shares of AMD stock, dilluting the stock significantly, even if a cap is put in place it still will.
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Yep.
Sucks for retail investors.
 
LegendKiller said:
Lets clear a few things up here.


1. This has already been mentioned in the "AMD busted itself" thread.

2. A quarter of this goes to Morgan Stanley to repay a bridge loan.

3. Another healthy chunk of this goes to pay for call caps to prevent dillution of stocks when the bonds are converted.

4. The rate is low because they are also selling people the option to convert. Investors "pay up" for that option by reducing the financing cost of the bond.

5. If you were an equity investor in AMD this situation sucks. Essentially the conversion of these will pile on an additional 60+ million shares of AMD stock, dilluting the stock significantly, even if a cap is put in place it still will.

6. AMD is on hard times. Cash is decreasing, debt costs are increasing, profit is decreasing, manufacturing costs are increasing, future pipeline is not looking as healthy as Intel, while R&D is increasing.

In all aspects AMD is running themselves into the ground.
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I'm glad you said it as others seem to think amd is in the best position they've ever been in.......as hard as that concept seems to grasp.
 
dook43 said:
...
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Yep..... I guess your right...

Clearly everything thy say is raw truth, eminating from thow own soul... The purest of light dripping.... no.... oozing from thow own womb

Get over yourself dude, you look silly.
 
SpoogeMonkey said:
I'm glad you said it as others seem to think amd is in the best position they've ever been in.......as hard as that concept seems to grasp.
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Tech wise.....maybe. IF and this is a big IF the new products from DAAMIT are outstanding. IF they can keep their roadmaps on time. IF Intels new products aren't as good as expected (but that matters very little since over 80% of the world now owns intel based pc's.....and will buy again because its "intel inside")

Financially amd is sucking ass. More so than ever before. They really need this $2B to upgrade the fabs or they'll never stick to the roadmap. Hell they'll get lost at the first exit.
 
duby229 said:
Yep..... I guess your right...

Clearly everything thy say is raw truth, eminating from thow own soul... The purest of light dripping.... no.... oozing from thow own womb

Get over yourself dude, you look silly.
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I'm going to let the opinion of EVERYONE ELSE ON THIS BOARD speak for itself.
 
Yep, becouse everybody is saying to jump off a bridge, I'm gonna do it, becouse I do what everybody else tells me to do... I'm cool. I'm hip.... I'm with it....

Sorry, but as I said before, if we knew, they knew it... Period end of story...
 
duby229 said:
Yep, becouse everybody is saying to jump off a bridge, I'm gonna do it, becouse I do what everybody else tells me to do... I'm cool. I'm hip.... I'm with it....

Sorry, but as I said before, if we knew, they knew it... Period end of story...
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There is a certain amount of sceptical reasoning that should take place and a definite amount of arms-length analysis that everybody should do. The problem with most people is that they get hooked on a certain technology and think that technology makes a great company. However, as has been proven many times in history, great products do not make a great company, nor do great companies always make great products.

AMD has awesome potential, but the executives are screwing things up. When people lend money they don't lend it when looking at just processors, or fusion, or technology in general, they look at it from the perspective of cashflow, both current and potential future cashflow, and what management has done with that cashflow in the past.

I work in investment banking. I specifically work in financing companies. I look at cashflow measures, management quality, corporate ability to repay debt, future cashflow potential, and utilize "gut" feeling to extend (or not) credit and price that credit (if extended) appropriately.

Personally, I think AMD is on the cusp of getting into a major crisis. They could go either way at this point and if I were a major creditor, or a potential one, I'd certainly be crunching a lot of numbers to determine my risk exposure.

AMD needs to get their crap together and soon, otherwise they will have to scale back operations significantly and go back to being a K6-2 player, which they are good at. I really think they squandered the lead that K7+ gave them and they really mismanaged their trajectory. They had a perfect opportunity to leapfrog intel, keep ahead, and deliver solid products into the future.

Many people say that they needed to buy ATI for chipsets, that's complete BS. ATI didn't even make chipsets until a couple years ago and even now they aren't considered that great. Nvidia was doing a pretty dang good job at supporting AMD. AMD bought ATI as a last-ditch effort to pump up their product line.

*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!s need to step back and realize that it's not all newegg and Barcelona that makes the world go around. Its money. AMD is pissing it away and people are starting to get worried.
 
While I'm not familiar with the financial side of things, I can agree that AMD has some money problems... More then that I cant say. I dont know.

However on the technology side of things. The only thing AMD had before the ATi purchase was barcelona. Thats it. It would have been over with a doubt.. There is no doubt what-so-ever that if they had not bought ATi, they wouldnt be around in 2009.

While AMD is primarily an engineering company, they also have a market to satisfy. That market demands platform support and has for years. Up until recently the platforms were largely being supported by nvidia, which isnt exactly an ideal situation for AMD to be in... You dont think the chipset was important, but The folks who are demanding AMD provide an in house platform does.

I dont know how many ways to say, but AMD doesnt care about you. They care about IBM, Lenova, Dell, HP and the Channel. That is it. Nothing else. What these folks want is what these folks get. They want an in house platform.. AMD had a choice, spend the next 3 years developing one, or buy one.

And hell since were at it we might as well tke care of the roadmap issues we have while were at it, and buy ATi, since they already have an architecture that scales incredibly well, and has proven its worth. Its expensive, but he we can afford it now...

However you can bet your bottom dollar, that AMD also knew about Conroe. They knew full well, that Conroe was going to outperform K8, They knew full well, that if they didnt complete the buy out within the time window they were given, that it wouldnt be possible later...

It was buy ATi or die. So they bought AT.
 
LegendKiller said:
*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!*!s need to step back and realize that it's not all newegg and Barcelona that makes the world go around. Its money. AMD is pissing it away and people are starting to get worried.
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That's kind of what I've been trying to say this whole time.

I'm not a diehard phanboi and I'm no longer a vested shareholder but I worry about a company going down the shitter that has enhanced my computing experience for the last 8 years running.

Duby229 said:
However you can bet your bottom dollar, that AMD also knew about Conroe. They knew full well, that Conroe was going to outperform K8, They knew full well, that if they didnt complete the buy out within the time window they were given, that it wouldnt be possible later...

It was buy ATi or die. So they bought AT.
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I have to agree with this. Financially it was horrible timing but it wouldn't happen today....not a chance. Just like the Jolly Green Giant couldn't get by just canning peas, they had to diversify and can corn....and green beans....and lima beans. So has amd branched out into flash ram, embedded devices and now....video cards / chipsets. And if the debt doesn't kill them, they may be around to see the fruits of their labors.
 
If AMD knew that things would turn out the way they did, why didn't they issue more shares/options back when the stock was riding a high at $34? Why did they wait to get a quarter on the dollar?
 
If AMD is so damn smart and knows so much, why didn't they begin making their own chipsets 3-5 years ago? :rolleyes:
 
Fanofou said:
If AMD is so damn smart and knows so much, why didn't they begin making their own chipsets 3-5 years ago? :rolleyes:
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This is what I find amazing that everybody keep pointing out. If AMD knew what Core2 was going to do, or that they *NEEDED* a chipset, then they'd be doing well now instead of being on the brink of bankruptcy.

They had no idea what they were up against or what they needed to do. They were caught with their pants down and instead of pulling them up they grabbed a post-it note and slapped it over their wang. Very bad fix for a big mistake.
 
There is no such thing as a free lunc....Period.

AMD does have its own chipset line, it just isnt capable of competing very well. It wasnt until A64 started to kick ass that it became clear that they needed something more feature complete.

As far as money goes, all I can say is that if you and I who are on the outside knew it, then they knew it too. Long before we did.
 
duby229 said:
There is no such thing as a free lunc....Period.

AMD does have its own chipset line, it just isnt capable of competing very well. It wasnt until A64 started to kick ass that it became clear that they needed something more feature complete.

As far as money goes, all I can say is that if you and I who are on the outside knew it, then they knew it too. Long before we did.
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They had no damn idea that "centrino" was going to be that great. Most people thought that Intel was going to milk P4 a lot longer. It wasn't anything more than sheer luck that they had something better than P4, since from what I recall, the new architecture wasn't even a mainstream and primary R&D chain.

That's when the tide turned, when Intel stopped f'ing around with P4 and went back to what they should have been doing in the first place. AMD didn't see it coming, nobody did. Everybody thought that the processor was going to suck.

Do you seriously think that AMD knew years ahead of time that the new intel chip was going to be that great and just sat around? Please, you give them way too much credit. Having worked for several VERY large corporations (20bn+ in annual revenues) I know that you have an idea of the near-term pipeline but that's about it.

As far as money, what did they know? Even if they did know it doesn't mean they had any better ideas how to solve the problem. Buying a non-core competency company, pissing away billions in cash, raising borrowing costs, pissing away integration costs, and diverting attention from what was needed DURING a down-turn is a horribly idea strategically.

If I were still in business school I'd definitely utilize AMD as a case study on how to utterly f-up in corporate strategy. You DON'T go on a spending spree when your company is going DOWN, you do it when its going UP.

That being said, most studies have found that more than 70% of ALL mergers fail to deliver ANY shareholder value and in most cases significantly destroys shareholder value. Why?

1. Companies get desperate and try to create "synergies" when they are not there.

2. Companies mostly under-estimate the costs of acquisition, including funding and integration.

3. Companies usually over-estimate the "synergies" (I HATE that word) of what they'll get if they combine their companies. Chipsets don't get you jack-crap. ATI's chipsets aren't even that great and they are useless for what really matters to AMD at this point, enterprise. On the consumer side AMD was thoroughly covered by Nvidia and ATI. Finally, chipsets were a smidgen of what ATI does, it was a non-core business.

Thus, you took two companies slapped them together, said that they would make great "synergies", when in fact, ATI was primarily bought for a non-synergy causing business.

Even if you factor in integrated video and the "future", which has utterly failed in the past and isn't even needed all that much, you STILL don't get a great "synergy" as it's been wasted and precious money and time taken by a poorly executed and planned M&A.

All-in, AMD has shot themselves in the privates and will just keep hemorrhaging cash.
 
Indeed.

For what it's worth, amd has closed it's offering of $2.2B of convertable senior notes today.

AMD estimates that the net proceeds from the offering, will be approximately $2,169 million, after deducting discounts, commissions and estimated offering expenses. AMD used approximately $182 million of the net proceeds of the offering to fund the cost of the capped call transactions. AMD used $500 million of the remaining net proceeds to repay a portion of the term loan AMD entered into with Morgan Stanley Senior Funding, Inc. to finance a portion of the purchase price of, and expenses related to, the acquisition of ATI Technologies Inc. AMD will use the remaining amount for general corporate purposes, including working capital and capital expenditures.
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Hopefully the "capital expenditures" don't go into any execs pockets or towards free stocks for them to immediately sell back. They need to keep the company running and stick some cash into upgrading the fabs.

A post-it note to cover their junk! :p That was hilarious!!
 
Opinions vary. I can see that AMD was on its way to death. And I'm no expert. If I could see that, you can bet your bottom dollar so did AMD...

Id like to ask you something. Are you the head of a major corporation? Yes or No? If yes, then maybe you should be talking to AMD about your concerns instead of bitching and moaning in an enthusiast forum to a bunch of nobodies who cant do anything about it. If no, then your point has been made.
 
duby229 said:
Opinions vary. I can see that AMD was on its way to death. And I'm no expert. If I could see that, you can bet your bottom dollar so did AMD...

Id like to ask you something. Are you the head of a major corporation? Yes or No? If yes, then maybe you should be talking to AMD about your concerns instead of bitching and moaning in an enthusiast forum to a bunch of nobodies who cant do anything about it. If no, then your point has been made.
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I don't need to be the head of a major corporation to have a valid point. As far as my post, it wasn't bitching or moaning. I love how you try and marginalize my points by labeling them as "bitching and moaning". In reality, your phanboi-ism has been countered by reality and your only escape is a lame misdirection cop-out. Why do I post? Hopefully somebody will learn something and if anything, it relieves my boredom if only for a little bit.
 
LegendKiller said:
They had no damn idea that "centrino" was going to be that great. Most people thought that Intel was going to milk P4 a lot longer. It wasn't anything more than sheer luck that they had something better than P4, since from what I recall, the new architecture wasn't even a mainstream and primary R&D chain.

That's when the tide turned, when Intel stopped f'ing around with P4 and went back to what they should have been doing in the first place. AMD didn't see it coming, nobody did. Everybody thought that the processor was going to suck.

Do you seriously think that AMD knew years ahead of time that the new intel chip was going to be that great and just sat around? Please, you give them way too much credit. Having worked for several VERY large corporations (20bn+ in annual revenues) I know that you have an idea of the near-term pipeline but that's about it.

As far as money, what did they know? Even if they did know it doesn't mean they had any better ideas how to solve the problem. Buying a non-core competency company, pissing away billions in cash, raising borrowing costs, pissing away integration costs, and diverting attention from what was needed DURING a down-turn is a horribly idea strategically.

If I were still in business school I'd definitely utilize AMD as a case study on how to utterly f-up in corporate strategy. You DON'T go on a spending spree when your company is going DOWN, you do it when its going UP.

That being said, most studies have found that more than 70% of ALL mergers fail to deliver ANY shareholder value and in most cases significantly destroys shareholder value. Why?

1. Companies get desperate and try to create "synergies" when they are not there.

2. Companies mostly under-estimate the costs of acquisition, including funding and integration.

3. Companies usually over-estimate the "synergies" (I HATE that word) of what they'll get if they combine their companies. Chipsets don't get you jack-crap. ATI's chipsets aren't even that great and they are useless for what really matters to AMD at this point, enterprise. On the consumer side AMD was thoroughly covered by Nvidia and ATI. Finally, chipsets were a smidgen of what ATI does, it was a non-core business.

Thus, you took two companies slapped them together, said that they would make great "synergies", when in fact, ATI was primarily bought for a non-synergy causing business.

Even if you factor in integrated video and the "future", which has utterly failed in the past and isn't even needed all that much, you STILL don't get a great "synergy" as it's been wasted and precious money and time taken by a poorly executed and planned M&A.

All-in, AMD has shot themselves in the privates and will just keep hemorrhaging cash.
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I stood up from my desk and clapped after reading that. Thank you very much!

There are several threads on the Intel side of the forum where many of us tried to tell some of these same posters about the first Pentium M. We speculated that Intel would move it to the desktop. We openly talked about Dothan and Yonah then how AMD had better watch out:eek: Almost none of the AMD leaning folks took the threat seriously.
 
after Nehalem next year, AMD better watch out for Gesher on 2009.......with built in graphics :D
 
AMD will never go bankrupt, Intel needs AMD just as Microsoft needs Apple. Both companies need a competitor to ward off anti-trust lawsuits. In fact, I wouldn't be surprised at all if Intel bailed out AMD by purchasing massive ammounts of stock if the company did go into serious financial trouble.
 
NulloModo said:
AMD will never go bankrupt, Intel needs AMD just as Microsoft needs Apple. Both companies need a competitor to ward off anti-trust lawsuits. In fact, I wouldn't be surprised at all if Intel bailed out AMD by purchasing massive ammounts of stock if the company did go into serious financial trouble.
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QFT!
 
NulloModo said:
AMD will never go bankrupt, Intel needs AMD just as Microsoft needs Apple. Both companies need a competitor to ward off anti-trust lawsuits. In fact, I wouldn't be surprised at all if Intel bailed out AMD by purchasing massive ammounts of stock if the company did go into serious financial trouble.
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What exactly would purchasing AMD stock do? Unless it was a private issuance and Intel purchased it directly, it wouldn't give AMD any money. Now, a cash infusion, ala Apple&MS, is different.

AMD may go bankrupt, it is certainly possible, but whether it will go out of business is unlikely. Companies have gone "bankrupt" for restructuring numerous times, look at the airlines.

Personally, I see AMD going back to where they were 5-6 years ago. As far as anti-trust, MS holds the vast majority of the PC market and the "anti-trust" lawsuit didn't really hit them at all. Having one company dominate the environment doesn't necessitate an Anti-trust lawsuit. Having one company abuse it's powers in that monopoly does.
 
LegendKiller said:
What exactly would purchasing AMD stock do? Unless it was a private issuance and Intel purchased it directly, it wouldn't give AMD any money. Now, a cash infusion, ala Apple&MS, is different.

AMD may go bankrupt, it is certainly possible, but whether it will go out of business is unlikely. Companies have gone "bankrupt" for restructuring numerous times, look at the airlines.

Personally, I see AMD going back to where they were 5-6 years ago. As far as anti-trust, MS holds the vast majority of the PC market and the "anti-trust" lawsuit didn't really hit them at all. Having one company dominate the environment doesn't necessitate an Anti-trust lawsuit. Having one company abuse it's powers in that monopoly does.
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Wow........ Just wow.... (Jaw drops, eyes go buggy)
 
duby229 said:
Wow........ Just wow.... (Jaw drops, eyes go buggy)
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What exactly is causing you to go all Marty Feldman?

Buying worthless stock does not generate money for a company.

Look how many times the airlines have filed bankrupcy. Chapter 7 let's them re-organize and get rid of the excess fat (mostly the way over payed executives). 1000's of campanies have done this in the past and survived.....and it's something I've almost expected of amd for quite some time now.

And since when is a company with no competition a monopoly? Who does ms have to compete with.......anyone......Bueller?
 
duby229 said:
Wow........ Just wow.... (Jaw drops, eyes go buggy)
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What part do you disagree with? I put down nothing but the truth.


Purchasing AMD stock doesn't do anything, unless the issuance is done directly TO intel and stockholders are happy with such issuance diluting their base and with Intel holding a decent portion. Otherwise it's just secondary market purchase and does nothing for AMD. That's just purchase from one individual shareholder to another.

That and everything else I said is 100% truth. Now, you can disagree, but at least bring forth something, rather than blathering, phanboi-ism, and half-baked ideas.
 
Fanofou said:
If AMD is so damn smart and knows so much, why didn't they begin making their own chipsets 3-5 years ago? :rolleyes:
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Nvidia purchased ULi for $52M (million). We all know what AMD paid for ATI - approx 100 times as much. DOH!
 
Aix said:
If AMD knew that things would turn out the way they did, why didn't they issue more shares/options back when the stock was riding a high at $34? Why did they wait to get a quarter on the dollar?
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The cretins at the top are out of touch.Hector never should have been put in charge.
 
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