AMD Spins Off Plants into Venture with Abu Dhabi

SAN FRANCISCO(Reuters) – U.S. chip maker Advanced Micro Devices Inc said it plans tospin off its manufacturing plants into a joint venture with Abu Dhabito get a cash injection and shrink debt to better compete againstlarger rival Intel Corp.

AMD’s shares soared 31 percent on the news on Tuesday, after WallStreet has waited for months for the struggling chip maker to formulateits so-called "smart asset" strategy aimed at letting the companyinvest more in developing chips and less in costly factories.

Advanced Technology Investment Company (ATIC), an Abu Dhabistate-owned venture capital company, will invest at least $5.7 billion,getting a 55 percent stake and half the board seats. AMD will own therest.

Another Abu Dhabi government company, Mubadala Development Co, willspend $314 million to increase its stake in AMD to 19.3 percent from8.1 percent and gain a seat on AMD’s board, AMD said in a statement.

"Today is a landmark day for AMD, creating a financially strongercompany with a tightened focus," Dirk Meyer, president and chiefexecutive officer of AMD, said in the statement.

AMD has lost market share to Intel and in the last few years wasforced to weigh the price of its pride in owning the semiconductorfabricating plants, or "fabs," which most other chip makers gave uplong ago.

AMD has also been hit by problems with its high-end personalcomputer and server Barcelona chip, and had bumps along the road afteracquiring graphics chip maker ATI. The European Commission has chargedIntel illegally paid computer makers and retailers to avoid AMD.

The new venture, temporarily called Foundry Company, will assume all$1.2 billion of AMD’s manufacturing operations debt so the remainingcompany can compete hard against Intel, which sells about 80 percent ofthe central processing units at the heart of the world’s 1 billion PCs.AMD makes the rest.

AMD shares jumped to $5.55 in premarket trading from their MondayNew York Stock Exchange close of $4.23, though the stock remains farbelow its 12-month high of $14.73.

NEW FACTORY

The 3,000-person Foundry Company will make all of AMD’s centralprocessing units as well as chips for other companies. It plans tobreak ground next year for a factory in upstate New York, employing1,400 people, if New York state will transfer financial incentives tothe new company.

The chief executive will be Doug Grose, senior vice president oftechnology at AMD, and its new chairman will be Hector Ruiz, nowchairman of AMD.

The joint venture will upgrade an existing AMD plant in Dresden,Germany, and build the plant in New York to the latest technologystandards, AMD said. It said the Foundry Company, which will be onAMD’s balance sheet, may ultimately build a fab in Abu Dhabi.

ATIC will invest an initial $2.1 billion, paying $700 milliondirectly to AMD. After that, it will invest an additional $3.6 billionto $6 billion over five years.

ATIC Chairman Waleed Al Mokarrab said on a conference call that thiswas his company’s first major investment and "though owned by the AbuDhabi government, ATIC will be directed by commercial principals thatwill generate commercial returns."

Mubadala, which holds stakes in sectors ranging from energy toaerospace, purchased an 8.1 percent share of AMD in 2007 for $622million. It will boost that stake to 19.3 percent by buying 58 millionnewly issued shares and warrants for 30 million more.

The deal is to close at the end of 2008 or early in 2009, ifapproved by stockholders. It will also be reviewed by the U.S.government inter-agency Committee on Foreign Investments in the UnitedStates (CFIUS).

The deal will be welcomed by IBM, which has worked closely with AMDand other chip makers to improve chips. The company will be part of theIBM technology alliance, making it easier to build chips for members.

(Additional reporting by Tiffany Wu; editing by Kim Coghill and Maureen Bavdek)