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AMD is Finally Fabless, Dead Certain to Secure a Profit in Q2 2016

When Advanced Micro Devices (AMD) announced its first quarter 2016 results, the company executives stated that they’re on track towards return to profitability in the second quarter of this year. In Q1 2016, the company suffered a $109 million loss on $832 million revenue, during a silent quarter stifled with the lack of orders (post-holiday blues in the West meets Lunar New Year two-week slowdown).

The announcement of the Chinese Joint-Venture which might lead to AMD enterprise x86 processors becoming a standard feature in Chinese government institutions is going to earn company much more than the $293 million licensing fee, as AMD now has access to a plethora of R&D grants which should accelerate technology development for the main company product lines as well. After all, this strategy was well explored by their former main competitor Intel, who so far received over 11 figures worth of various grants for its actions in China. Under Lisa Su’s guidance, AMD is now starting to make inroads into a rich pool of essentially free money and human resources.

However, that was not the only Joint Venture the company was working on. Today, Advanced Micro Devices Inc., and Nantong Fujitsu Microelectronics Co., Ltd. finalized the transaction where AMD is spinning off its final manufacturing facility. Over a decade ago, AMD spun off its flash manufacturing facility to Fujitsu (known as Spansion, now Cypress Semiconductor), and today the company is once more forming a joint venture with a Fujitsu related company.

"Diffused in Germany, Made in Malaysia" marking on AMD Fusion A6-3600 APU

“Diffused in Germany, Made in Malaysia” marking on AMD Fusion A6-3600 APU – this product origin is present on all AMD processors for the past 10 years.

AMD’s Assembly, Test, Mark and Pack (ATMP) facilities in Penang, Malaysia and Suzhou, China are known to every owner of AMD processors with the traditional markings “Diffused in Germany, Assembled in Malaysia.” Chipsets were typically “Diffused in Taiwan, Assembled in China.” Under the new deal, AMD will keep 15% of the JV, while Nantong Fujitsu is paying $371 million for 85% share. That will translate to $320 million after taxes and other related expenses, removing 1,700 people from AMD’s workforce.

“Combining AMD’s world-class teams and facilities in Penang and Suzhou with NFME’s expertise in the growing assembly and test market will create a new outsource assembly and test leader with the scale and capabilities to help us deliver our upcoming high-performance technologies and products that can re-shape the industry,” said Dr. Lisa Su, President and CEO, AMD. “The creation of this joint venture marks another step in building a more focused AMD as we complete our transition to a fabless business model, enhance our supply chain operations, and further strengthen our financial position.”

“AMD is a world class semiconductor provider with advanced flip chip packaging and test technologies. These capabilities are complementary with NFME’s advanced packaging and test technologies, such as its flip chip and bump technology for the computing, communication and consumer market,” said Mr. Shi Mingda, Chairman, Nantong Fujitsu. The establishment of this joint venture will elevate the competitiveness of NFME’s flip chip packaging and test technologies to a world-class level. With this joint venture, NFME’s advanced packaging and test capabilities will account for 70 percent of its total revenue, leading the entire industry and ranking among the top packaging and test companies in the world.”

The “New AMD” now has all but guaranteed profit i.e. net income in the current, second quarter 2016. As we reported, AMD 3.0 strategy is being executed by Dr. Lisa Su and Raja Koduri. AMD is going to continue as a business development organization being led by Lisa, while Raja will push the creation of new products and technologies with the Radeon Technologies Group. Even though the name is RTG, Radeon Technologies Group also takes care of the microprocessor lineup. While AMD / RTG haven’t disclosed the workforce split, AMD / RTG is evolving into a lean operation with clearly split roles, a move which can only benefit the company.

These are provided highlights for the whole deal:

  • NFME’s affiliates have purchased an 85 percent share of AMD’s Penang, Malaysia and Suzhou, China ATMP operations and act as controlling partner for the new joint venture business.
  • AMD received from NFME approximately $371 million, excluding purchase price adjustments, with net cash proceeds of approximately $320 million after payment of taxes and other customary expenses. AMD retains a 15 percent ownership of the Penang and Suzhou operations.
  • The transaction is expected to be cost neutral to AMD’s P&L while significantly reducing AMD’s capital expenditures. AMD will account for its 15 percent ownership stake in the joint venture and its results of operations under the equity method of accounting.
  • Approximately 1,700 AMD employees transitioned to the joint venture.
  • J.P. Morgan Securities LLC served as exclusive financial advisor to AMD, and provided a fairness opinion to the board of directors of AMD.
  • TheDizz

    @theovalich:disqus but this is only from the cash injection due to the joint venture, they still have to prove they can make consistent profits just based off their products. Bleeding money there and getting cash in JVs can only help the balance sheets for a few quarters or so, wouldn’t you agree?