AMD Braces For Battle With Intel By Grabbing $622 Million Arab Investment


Mubadala Development Company, a strategic investment and development company headquartered in Abu Dhabi, the capital of the United Arab Emirates (UAE), took an 8.1 percent stake in AMD by buying 49 million newly-issued shares at a price per share of $12.70, the closing price of AMD common stock on November 15.

AMD characterized the investment as "a non-controlling, minority investment." Mubadala will not receive any board representation as part of the deal. Furthermore, AMD said the investment is not subject to review by the Committee on Foreign Investment in the U.S. (CFIUS).

The investment comes during a year when AMD has been struggling to boost its cash flow and fighting growing red ink. Earlier this year, Chairman and CEO Hector Ruiz told CRN that the company was, in fact, seeking out avenues to boost its cash position - - leading to speculation for much of the year that AMD would seek a private equity investor. In February, Ruiz told CRN, "We've been very open about things we're doing to raise cash."

The timing is critical for AMD. Not only has the chip maker been losing money, it has been struggling to deliver its quad-core Opteron chips - - also known as Barcelona - - in volume to the channel and Tier 1 vendors. Some top executives, including its former sales chief Henri Richard, have also left the company in recent months.

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At the end of AMD's last quarter, it said it had slightly more than $1 billion in cash on hand, according to it most recent 10-Q filed with the U.S. Securities and Exchange Commission earlier this month.

AMD said it will use the net proceeds from the sale of the shares of common stock for general corporate purposes including accelerating its long-term, customer-focused growth strategy by investing in R&D, product innovations and manufacturing excellence.

Glen Coffield, president of Smart Guys Computers, a four store system builder based in Orlando Fla., said AMD should use the cash to boost its system builder channel, but he is skeptical the channel will benefit from the cash infusion.

"I think they should use the cash to level the playing field between system builders and tier one OEM and Etailers," said Coffield. "But they won't. Their people are in love with Etail. They think their whole business is served by etail and tier one. That is the new AMD. They don't care about me and other system builders. I have a channel rep that cares about me, but his bosses could care less."

"The part that hurts is it is guys like me that built AMD: thousands of small mom and pop shops and now AMD has totally abandoned us," he said.

Smart Guys Computers was predominately an AMD system builder for nearly a decade, said Coffield. But he has pulled back on building AMD based systems. He said Smart Guys was an AMD platinum solution provider doing anywhere from $750,000 to $1 million in business with AMD several years ago. "I probably won't buy $100,000 (in processors) this year," he said.

Coffield said that he simply can not make a profit on AMD processors given the chip makers pricing policies with tier one OEMs and etailers. "AMD has some wonderful products," he said. "Unfortunately I am not a charity. If I can not make money selling the product or get it at favorable prices, it has no business being in my store. I can't feed my family or my employees' families on good technology. I need profits."

Coffield said Intel has more "favorable backend programs, stronger marketing funds, and better specials on boards and chips" for system builders. "I also feel Intel has better technology at this point and it's getting better," he added.