The investment company has increased its stake in the world's second largest semiconducter maker.
Mubadala raises AMD stake
ABU DHABI // Mubadala Development has finalised a deal with Advanced Micro Devices (AMD) to take control of its semiconductor manufacturing operations and raise the state-owned firm's stake in the company. Advanced Technology Investment Company (ATIC), a unit of Mubadala, is now a 66 per cent owner of The Foundry Company, which manufactures microchips for AMD. Mubadala also raised its stake substantially with an investment of US$125 million (Dh459.1m) in AMD, which has been hard hit by the drop in demand for computers. AMD's stock price has dropped 71 per cent since June. "The business case has not changed. This is a long-term investment in a cyclical industry," said Waleed al Muhairi, the chief operating officer at Mubadala who was also named to the AMD board. The Foundry Company's board will be chaired by Hector Ruiz, AMD's former chairman. The Foundry Company is only a temporary name and the company is expected to launch with a new name and visual identity later this week. "AMD and its committed partners have conceived two strong industry-leading companies capable of charting future courses that will dramatically improve the technology industry," said Dirk Meyer, the chief executive of AMD. Under the deal, ATIC paid $2.1 billion for a 65.8 per cent stake of The Foundry Company. Of that investment, $700m went directly to AMD, which will hold the remaining stake. AMD is seeking to narrow the company's focus and cut costs in the face of fierce competition from the market leader, Intel. For Mubadala, the deal represents an opportunity to develop one it its core business segments under the Government's plan to diversify the emirate's economy away from oil. Mubadala's investments are typically strategic and the company hopes to use its interest in The Foundry Company to bring microchip manufacturing facilities - which are among the world's most advanced industrial infrastructure - to Abu Dhabi. This means that paper losses on its original AMD investment - standing now at more than $500m - are unlikely to be realised, with Mubadala looking to hold its shares in the US company through the global economic crisis. Like most major US companies, AMD's stock price has been in dramatic decline. A worldwide economic slowdown is expected to stunt the growth in demand for new personal computers containing the company's chips; some analysts believe overall demand could drop. AMD produces central processing units (CPUs) and video cards for use in personal computers and corporate servers. The Foundry Company, which will acquire all of AMD's manufacturing assets, will expand its capacity to become a contract manufacturer for other companies, such as makers of consumer electronics and mobile phones. ATIC said it would invest up to $6bn to expand and diversify the capacity of the new company. At the same time as the manufacturing tie-up, Mubadala boosted its 8.1 per cent holding in AMD - acquired for $622m last year - to over 16 per cent. Mubadala has an option to raise it further to 19.6 per cent. The price of the new shares and warrants was negotiated down to $125m in December after AMD's stock price fell. Mr al Muhairi said the price used for the latest transaction was based on a complex formula, but would be close to AMD's Monday close at $2.01 per share. AMD, a distant runner-up to Intel in the microprocessor business, won approval from shareholders last month to spin off its two chip-making plants as it faced its fourth annual loss this year. In January, the company reported a $1.42bn fourth-quarter loss, hurt by a rapidly deteriorating environment for computer sales as well as big write-offs. Mr al Muhairi was upbeat about the long-term prospects. "Now is a down point in the cycle," he said. "That is when you invest in capacity, so when the market picks up you can start producing. The trajectory of the semiconductor business is going up." *with Agencies firstname.lastname@example.org email@example.com