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AMD stock rose on Monday in response to LBO rumors, but then fell on Tuesday

Shares of AMD rose on Monday amidst rumors of a leveraged buyout. AMD shares were up 74 cents, or 5 percent, at $15.43 in yesterday’s morning trading on the New York Stock Exchange. AMD has traded between $14.43 and $42.70 over the last year.

“It wouldn't surprise me if there was some sort of 'creative solution' in the works to help (strengthen) AMD's balance sheet,” said FTN Midwest Securities analyst JoAnne Feeney to the AP. “They took on a fair amount of debt for the ATI acquisition, and clearly AMD needs to do something about its balance sheet.”

"When they acquired ATI, they had to borrow quite a lot to finance that purchase and that's created a higher debt-to-capital ratio than they had in the past. It's still in that squeeze,” Feeney said to Reuters.

“The volume in AMD March calls have been abnormally high,” said Steve Sosnick, equity risk manager at Timber Hill and common source for M&A commentary. “There are rumors of a private equity buyout. At least in the near term, the options market is giving some credence to these rumors.”

While the analysts quoted by the recent news agencies reports seem to think that such a buyout is possible, another Wall Street analyst, American Technology Research's Doug Freedman, said earlier this month that AMD would be an unattractive candidate for private equity firms due to the company’s struggling cash flow from its price war with Intel.

In related news, FTN Midwest today cut its stock rating for AMD from a “buy” to a “neutral,” citing that the Sunnyvale company could be facing increased competition if Intel is able to deliver its 45nm product ahead of schedule. Analysts believe that AMD would have to cut prices even further to avoid further losses of market share, and may not recover until mid-2008.

Shares of AMD current sit down nearly 4 percent at $15.06.



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This wouldn't change anything?
By archcommus on 2/27/2007 5:14:10 PM , Rating: 2
So this wouldn't change anything from our perspective? Or would it? I'm confused. What's the difference between a buyout and the company just being sold.




RE: This wouldn't change anything?
By djc208 on 2/27/2007 5:42:30 PM , Rating: 2
A buyout is more "hostile" than being sold. Anyone who buys a share of AMD stock owns a piece of the company (1/however many shares of stock there are). If AMD sells it would sell it's shares of the company to someone else and become part of their company. Like ATI, when ATI sold to AMD anyone who owned ATI stock got it exchanged for AMD stock at some ratio based on the sale terms.
In a buyout the company tries to buy enough stock to have a controlling interest in the company, in which case they have the most say in what goes on in the company (a share is like a vote, the more shares, the more your vote counts). Both can be good for investors, just in different ways.
As for what it could mean to us or the company, well it could mean anything, depending on who bought it and why. Like someone else said, the company or companies that purchase AMD could try to get it financially stable, supply the money to make it competitive with Intel again, and re-sell the stock to make a proffit. Or they could hold it if the proffits from the company are good enough. They could also split it up and sell off the parts to whoever was willing to pay. CPU designs to IBM, GPUs to Microsoft, fabs to different companies, etc. On one hand it could mean AMD would be more competetive with Intel and Nvidia, or it could be killed and sold for scrap leaving us with one CPU company again.


RE: This wouldn't change anything?
By archcommus on 2/27/2007 6:27:51 PM , Rating: 2
So they bought ATI with a bright future in mind, and that very feat has put them in such a bad financial state that now buyouts are being considered? This doesn't seem right. We go from AMD assuming a huge debt for the better of the company in the long run to six months later they might not be able to survive on their own.

I understand AMD was hit hard with price wars and Intel competition, but I didn't think anything was dire yet.


RE: This wouldn't change anything?
By Viditor on 2/27/2007 6:43:45 PM , Rating: 2
quote:
So they bought ATI with a bright future in mind, and that very feat has put them in such a bad financial state that now buyouts are being considered?

ATI has very little to do with it, and their financial state isn't that bad.
The price war with Intel is 99% of the reason for the current low share price...notice that Intel is in the same boat (they have had a superior chip since July, and their share price is the same as a year ago).


RE: This wouldn't change anything?
By stromgald on 2/27/2007 6:57:01 PM , Rating: 2
Actually since July, Intel's stock has been up as much as 25%. Right now it's only up about 12%. Your statement is misleading because although Intel's stock price since from Feb '06 to Feb '07 is about the same, there was in decline before July '06 and increased steadily until Nov'06. Since then it's been pretty stable from $20-22/share.


RE: This wouldn't change anything?
By Viditor on 2/27/2007 8:28:37 PM , Rating: 2
quote:
Actually since July, Intel's stock has been up as much as 25%

You need to look at the same dates year on year as sales are seasonal...
The same fluctuations happen to AMD and the other semicondutor stocks.
So no, it's really not misleading to base changes on the same date a year ago.
And the price has stayed the same...


RE: This wouldn't change anything?
By Viditor on 2/27/2007 8:40:19 PM , Rating: 2
BTW, you should also keep in mind that Intel spends more to keep it's share price up (dividends, share buybacks) than AMD makes in a year...
As of the end of Q3 06, Intel had spent (for the 2006 year) $3.6 Billion for share buybacks, and $1.7 Billion in dividends.
This money is spent strictly to keep shareholders happy and make the stock more attractive...the net result was to have the stock price stay the same.


RE: This wouldn't change anything?
By Adonlude on 2/28/2007 1:18:40 PM , Rating: 2
Um, yea, that is what a successfull, healthy company does. They repay their investors through dividens and buybacks. Why are you presenting this as if it's an artificial or "cheap" way to create a higher stock price???

I dont think you understand how stock works. AMD has been performing bad, Intel has been performing good. Good = more money in Intels coffers = more money for company owners (including investors) = ownership of Intel being more valueable (higher stock price).

When a large company like Intel is running a very successful bussiness sometimes it is not beneficial to invest its massive profits in further growth. For example: If Intel is alreay meeting current processor demands does it need to build another fab? Another fab in this situation would lead to overstock of processors which takes away value for company owners. In these cases it is better to give cash directly back to company owners (investors).

Intel spends more to keep its stock price up than AMD you say? Yep, that is becuase Intel is currently far more profitable than AMD... but this is the wrong way to look at it.


By Viditor on 3/1/2007 11:23:17 AM , Rating: 2
quote:
I dont think you understand how stock works

Golly, you must be right...I better liquidate my own portfolios and tell all those people whose portfolios I manage that I just don't get it...
/sarcasm
quote:
AMD has been performing bad, Intel has been performing good

So THAT's how it works...I knew it was a mistake to study those balance sheets, obviously both companies were lying!
quote:
For example: If Intel is alreay meeting current processor demands does it need to build another fab?

Absolutely...I'm sure they just had all those thousands of lay-offs to be mean. Maybe they didn't like those people?
quote:
Intel spends more to keep its stock price up than AMD you say?

No, I said Intel spends more to keep the stock price up than AMD makes in total gross revenue...


RE: This wouldn't change anything?
By Phynaz on 2/28/2007 12:30:41 PM , Rating: 2
quote:
ATI has very little to do with it, and their financial state isn't that bad.


You really have take closer look. AMD is in one serious cash flow crunch right now.


By Viditor on 3/1/2007 11:37:52 AM , Rating: 2
quote:
You really have take closer look. AMD is in one serious cash flow crunch right now

Believe me, I have looked VERY closely at their cash...and you're right, it's tight. But with all of the solutions available to Bob Rivet, it's really not that serious (despite what Mr. Freeman thinks).

Of course the best way is to increase revenues, and Barcelona should help with that tremendously (remember that server revenue has the highest margin, and especially the quad core), but they can also cut costs...and as they are to be completely converted to 65nm/300mm by July in Fab36, COGS will reduce significantly.
There is also the option to slightly dilute shares with a bond offering, but that is a definate plan B...

Either way, unless Barcelona is a dog or they can't produce it as economically as they have the K8, their financial state really isn't that bad.


All I can come up with is this?
By Mitch101 on 2/27/2007 3:49:55 PM , Rating: 1
Microsoft-because of ATI for XBOX 360 and to get a piece of the Nintendo Wii. Because it would help them produce handheld game units for the CPU and GPU. Finally AMD because of the CPU's for the next generation of X-Box. Microsoft could finally product a MAC type PC by just rebadging an X-Box 360 and using an AMD cpu as the core instead.

A more likely candidate would be a Chinese corporation because China was looking to create CPU's at one time and buying AMD might be an easier choice but if so who?

Lenovo? But Im not sure they could. I would suspect Toshiba much more than Lenovo.

One of the chip foundries? Maybe?

It really leaves me with nobody because its not that attractive from a finacial perspective unless the purchasing company has something to offer that would make AMD/ATI a true competitor to Intel. On the technical side AMD is an attractive buy to someone looking to get into the CPU market because its probably cheaper than attempting to create a CPU from scratch especially with all the patent and cross licensing involved.

It would make more sense to me if AMD was looking to buy Transmeta?

Could the combination of AMD/ATI give them enough financial leverage to buy NVIDIA? Sometimes a small company will continue to aquire companies smaller then itself to eventually become a giant.

Lets just hope its not IBM. They screw up everything they buy.




RE: All I can come up with is this?
By deeznuts on 2/27/2007 4:00:35 PM , Rating: 3
I think you missed the part about LBO's and Private Equity Firms. I don't think any of the big tech corps are looking to acquire AMD.

It's not a tech play its strictly a financial one.


By Mitch101 on 2/27/2007 4:12:46 PM , Rating: 2
I agree its just not attractive. LOL. My post got downgraded.

Share your thought people thats all I was doing.


RE: All I can come up with is this?
By Mitch101 on 2/27/07, Rating: -1
RE: All I can come up with is this?
By bobdelt on 2/27/2007 4:14:10 PM , Rating: 1
Can you read?

A tech company wouldnt buy AMD because of its poor B\S. A private equity firm would have the resources to clear up some of the debt, fix amd's cash flows problems, and then sell it off again.

Why is dailytech posting this? This article belongs on a financial news site, not a tech news site. This isnt tech news.


RE: All I can come up with is this?
By Mitch101 on 2/27/07, Rating: -1
RE: All I can come up with is this?
By cochy on 2/27/2007 4:37:06 PM , Rating: 3
You're off your rocker. There were tons ATI buyout rumors by AMD. IBM screws stuff up? What are you talking about?
Plus the article talks of rumors of a private buyout. Every company you've mentioned is public.


RE: All I can come up with is this?
By gramboh on 2/27/2007 5:06:44 PM , Rating: 3
No offense mitch but all your guesses about potential buyers are hilarious.

Do you know what a private equity firm is?


By Mitch101 on 2/27/2007 5:29:40 PM , Rating: 1
Yes I just hashed out scenarios of Tech companies instead. I dont think it was worth a few people getting their panties in a bunch. From a tech standpoint I again will state I dont think anyone would be interested in AMD but it was fun to think about it.

Private Equity firms are not the only rumor floating around on this.

Their has been a rumor floating around about a tech company looking to buy AMD since before they aquired ATI and the rumor of AMD was approached by Transmeta for a merger also.

As for IBM lets see, OS2 Warp, Domino, Cyrix, Tivoli, I think Word Perfect was in there also. The list goes on.

IBM=I Blame Microsoft.


By deeznuts on 2/27/2007 7:40:31 PM , Rating: 2
quote:
Why is dailytech posting this? This article belongs on a financial news site, not a tech news site. This isnt tech news.
Despite the very financial subject matter, it does concern ATI, one of the most recognizable names in consumer tech. It has its place on both types of sites.


By MrBungle123 on 2/27/2007 6:40:53 PM , Rating: 3
OK, I admit it... its me... maxing out all my credit cards on cash advances and buying controling interest in AMD.

soon the company name will be:

Mr Bungle's Brand(tm) Advanced Micro Devices.


My fear..
By Obujuwami on 2/27/2007 5:36:58 PM , Rating: 2
IF AMD/ATI is bought out will that make thier product any better or worse?

They might have fincial backing to invest in new projects but I can see the new buyers shrinking the company; cutting jobs, freezing any new projects for atleast one year, and allowing the company to recover from a major buy out.

I think that a buy out would actually be bad for AMD as it would be bad for: Intel, HP, Lenovo, Acer, and many other companies. AMD will recover from the purchase but it will take time.

Can anyone please comment on this as I might be the only pro AMD person posting here.




RE: My fear..
By Viditor on 2/27/2007 6:35:20 PM , Rating: 2
quote:
I think that a buy out would actually be bad for AMD

That depends...it could be good or bad. The only real net changes are that
1. AMD ends up with more cash (good)
2. The members of the board of directors change (good or bad, depending on what they do).

Remember that this is an Equity Firm "purchase", and not another tech company looking for a synergistic merger. The only changes made would be financial ones...and final managerial decisions would rest with the new BoD.


RE: My fear..
By Tom Tom on 2/27/2007 7:45:44 PM , Rating: 2
Remember that this is an Equity Firm "purchase", and not another tech company looking for a synergistic merger

Im starting to wonder if IBM isnt looking at AMD here. It sounds awkward but so did the rumors of AMD+ATI when they were swirling.


RE: My fear..
By Viditor on 2/28/2007 5:22:09 AM , Rating: 2
quote:
Im starting to wonder if IBM isnt looking at AMD here

I would agree with that, but the rumour is that IBM is actually looking to get out of the semiconductor business in the next decade...I doubt that they'd be interested.


RE: My fear..
By Lakku on 2/27/2007 7:42:24 PM , Rating: 2
Well, perhaps the cash flow can help get R600 out. Last I heard, from Xbitlabs, is that R600 is now delayed until Q2, delayed from its debut at CeBIT. If this is true, nVidia will have a near top to bottom DX10 line out by then, and probably have fixed their drivers as well. It doesn't look good for the ATi side of AMD right now, and I wonder if they are having driver problems with DX10 or some manufacturing problem. Or it could be the 240 to 270w power draw, which is near 100w more then the 8800gtx (draws around 170 to 185) that they are working on.


Intel Athlon...
By therealnickdanger on 2/27/2007 3:30:21 PM , Rating: 1
I kinda like the sound of that. :D

The Internet's track record for buyout rumors has been pretty damn good so far, but I don't quite believe this one yet.




RE: Intel Athlon...
By TomZ on 2/27/2007 3:35:44 PM , Rating: 1
Are you saying you read somewhere that Intel might be considering acquiring AMD?

I wouldn't think that would be possible from a DOJ/anti-trust perspective.

Most likely, a buyout would be from a private group of equity investors, such as those that bought out some of the other semiconductor companies over the past few years.


RE: Intel Athlon...
By therealnickdanger on 2/27/2007 3:40:32 PM , Rating: 2
Haha, no, no, no! I didn't read about Intel anywhere, but if anyone had the buying power and the motive to make it happen... Besides, IBM is still out there, so it's not like it would be a monopoly.


RE: Intel Athlon...
By stromgald on 2/27/2007 3:53:53 PM , Rating: 2
Actually, the buyout will likely come from a private equity firm. There was a rumor about this a few weeks ago since AMD is having cash flow problems. I seriously doubt Intel has much interest in acquiring AMD/ATI, and there's a good chance it won't even be a tech. company doing the buyout.

The benefit of a buyout won't be the merging and consolidating of technologies and resources, it'll be more of a financial driven acquisition. The acquiring company will buy AMD, use its monetary resources to boost AMD until it gets its act together/recovers from the ATI merger, then sells it back out for a profit or hold if they think AMD will generate steady revenue for them.


RE: Intel Athlon...
By osalcido on 2/27/2007 4:35:41 PM , Rating: 2
i think it'd be more like: Intel CoreAthlon Duo 10000+ w/ HT


Looks like AMD ate ATI and choked
By DallasTexas on 2/27/2007 8:56:58 PM , Rating: 1
My, how things change. Just 14 months ago Hector was buying full pagers on Wall Street Journal challenging Intel to a Netburst vs Opteron bake-off. Effectively, kicking sand on the sleepy giant.

Here we are. AMD is for sale at less than 1/3 their stock price. They ate ATI and choking on it.

Key learning: Don't get too cocky, too fast. Don't eat so fast. Don't pick a fight with someone 10x bigger than you.




By Viditor on 2/27/2007 9:39:55 PM , Rating: 3
quote:
AMD is for sale at less than 1/3 their stock price


Huh? Do you mean 1/3 of their all time high? Because that won't happen either...if an LBO is officially announced, I can assure you that we'll see the price well into the high 20s within the day.

quote:
They ate ATI and choking on it

They're doing fine with ATI...
People who don't understand investing are similar to those who don't understand semiconductors. Just as it takes years to bring a CPU to market, it also takes years to fully incorporate a synergistic acquisition.
Just as Intel is close to 1/4 of their own all time high (split adjusted $75.83 in Aug 2000), AMD is also at a low point at the moment...
It doesn't mean that ATI is choking anything...it means that during a price war, stock value drops!


This is not new
By crystal clear on 2/28/2007 2:27:59 AM , Rating: 2
I had made a comment on this sometime ago, & ofcourse some
dumb idiots voted it down.
Read on-

RE: AMD cash-flow warning
By crystal clear on 2/18/07, Rating: -1
By crystal clear on 2/18/2007 5:04:44 AM , Rating: -1

Quote-

"When we polled clients as to the reason behind (the strength in the stock in Wednesday's trading) we were told that private equity rumors were circulating," Freedman wrote in a note to investors. While we do not doubt that private equity is sitting on cash ... we have a hard time seeing how it would get involved in AMD at the present valuation."

Shares of AMD closed up 2.4 percent at $14.95 in Wednesday's trading.

Freedman also speculated that Michael Dell's recent return to Dell Inc. as chief executive may not bode well for AMD, since he has a strong relationship with chip maker Intel Corp.

"We advise investors to limit their exposure to AMD shares until cash is raised and new product benchmarks are made available," Freedman added.

http://www.businessweek.com/ap/financialnews/D8NAB...

Also-

AMD cash-flow warning
By crystal clear on 2/18/07, Rating: 2
By crystal clear on 2/18/2007 4:37:30 AM , Rating: 2

"Analyst sounds AMD cash-flow warning"

A US analyst has expressed "increasing concerns" that AMD is heading toward a cash-flow crisis even a shareholders' ears prick to whispers that a private equity company is looking to buy a stake in the chip maker - or even the whole kit and kaboodle.

AMD's cash flow was questioned yesterday by American Technology Research analyst Doug Freeman, who told the firm's investor customers: "We were surprised to see AMD shares rally yesterday given what we believe to be increasing concerns about cash flow at the company... we think management will be forced to come to the capital markets for operating cash before the end of the summer."

http://www.reghardware.co.uk/2007/02/16/amd_analys...




RE: This is not new
By Viditor on 3/1/2007 11:42:49 AM , Rating: 2
quote:
I had made a comment on this sometime ago, & ofcourse some

I didn't vote it down, but I probably would have...
This is the warnings of a single analyst who is probably short AMD...I don't give it a lot of weight.


Missing the boat
By staypuff69 on 2/28/2007 4:26:51 AM , Rating: 3
Well here we are talking about someone taking over AMD. Here's a little hint for you all. Don't believe everything you read. There is a cash flow problem. Is this due to lagging sales of AMD procs. No it isn't. Large companies especially tech ones rely on up to date R&D and manufacturing processes to stay competitive.

AMD's cash flow is due to them trying to compete with Intel on up to the minute high end procs and pushing huge amounts of money into labs creating procs that only 10% of the population buys. Throw $2 billion into a facility and see what happens to your cash flow.

Instead AMD should consider providing affordable cpu's that people require in day to day purchases. This is what they excelled at. Instead they've tried to compete with Intel in producing "enthusiast" processors. I don't know about anyone else here but here in Canada the vast majority of computers sold are from large retail stores in which AMD constitutes 85% of the sales. AMD should stick to this plan and spend their money on "sure thing" architectures. All of us sit here and lament the fact of faster and more yet don't realize we only are 15% of the purchasing force for these companies.

On the note of latest and greatest..... what if Barcelona is what AMD is claiming it is? Suddenly we have a shift like only a year ago and AMD is now the best on the block. Not only are they the best proc but also sell the most as well. Look into what exactly it means to be cash poor in a large corporation first. AMD is simply going about things the wrong way. One shift in perspective and suddenly Intel is the loser.

Oh and if you all want a company that may purchase AMD how about the one that has 80% of their comps hooked up with one of their procs........ HP ftw




Hmmmm
By rupaniii on 2/27/2007 8:07:28 PM , Rating: 2
Texas Instruments?




Beginning of the end
By Ben on 2/28/2007 12:05:51 AM , Rating: 2
The ATI buyout is going to ruin AMD. They bit off more than they can chew.

I'm just wondering if it was on purpose. Hector is either a moron, or he planned this from the start.




By crystal clear on 2/28/2007 3:25:36 AM , Rating: 1
Quote-

"AMD would be an unattractive candidate for private equity firms due to the company’s struggling cash flow from its price war with Intel."

Unquote-

Then the most suited buyer that has the cash/managerial know-how/computer related operations & is quite capable
to buy up AMD/or a 50% ownership deal- is nobody else but IBM.

IBM is on a buying spree.




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