Advanced Micro Devices
Inc. will get a smaller stake in a planned manufacturing joint venture and an investment from Abu Dhabi's Mubadala Development Co. will result in less cash for the money-losing chip maker.
The value of AMD assets being contributed to the joint venture with Abu Dhabi investment entities has been cut, reducing AMD's stake in the venture to 34% from the 44% set when the venture was announced two months ago.
In addition, the price Mubadala will pay for 58 million shares and 30 million warrants of AMD is no longer fixed. Instead of the $314 million previously agreed to, Mubadala will pay a per-share rate based on an average price for AMD's stock. Mubadala, whose stake in AMD will more than double to nearly 20% as part of the investment, is also getting five million more warrants.
An AMD spokesman said the terms of the venture were amended as a result of the "challenging economic environment." AMD shares have fallen more than 50% since the joint venture was announced.
The deal's other terms, including the Abu Dhabi entities paying $1.4 billion into the venture and $700 million to AMD, remains unchanged.
"Looks like it's being priced down materially," said analyst Brian Piccioni of BMO Capital Markets. "Obviously, they are getting less for what they've got. That's not good."
The joint venture plan and the investment come as AMD has been trying to cut costs and become consistently profitable as it continues to battle much larger rival Intel
Corp. AMD said last month it would cut 3% of its work force and last week slashed its fourth-quarter revenue forecast amid slumping demand, following a similar warning from Intel. The problems are particularly severe in desktop computers.
Analyst Roger Kay of Endpoint Technologies Associates said it was good that AMD was able to renegotiate the terms and "kept the deal moving."