When AMD (AMD) bought graphics chip maker ATI, it thought it was getting a deal. Nothing of the sort happened. AMD ended up with over $5 billion in debt. Larger rival Intel (INTC) jumped on AMD with better tech and a price war.
AMD went to hell over a year ago, and it is not coming back. Today the company said it would take more write-offs for the value of ATI and some restructuring, which usually means firing people. The sum of the total charge will be $948 million. Since the firm’s market cap is only $2.9 billion, the write-down is not insignificant.
AMD’s shares promptly hit another 52-week low of $4.60. A little over a year ago, they were above $40
In the March quarter, AMD had an operating loss of $264 million on revenue of $1.5 billion. That leaves Wall St. to ponder whether the company can makes its debt service. If the answer is that the odds are running against the company, shares could drop much lower.
AMD is in a corner and getting out maybe nearly impossible. It faces a global market where the sales of PCs and servers is likely being hurt by the economy. It cannot increase prices in any meaningful way without the potential of losing more market share to Intel.
If AMD is an independent, solvent company a year from now, it will be a miracle.
Douglas A. McIntyre
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