This Breakup Was Long Overdue
Mar 5th 2012 8:06PM
Updated Mar 5th 2012 8:08PM
Some breakups take longer than others. Hollywood hookups are lucky to last a month, but Advanced Micro Devices (NYS: AMD) just put the finishing touches on a separation more than three years in the making. Kim Kardashian should be taking notes.
AMD's manufacturing arm is now entirely out of the company's hands. GlobalFoundries becomes the sole property of the Abu Dhabi-based Advanced Technology Investment Company. Most of the time, companies get paid for divesting unwanted operations. In this case, AMD is paying ATIC $425 million in cash for the privilege. You'll see a $703 million charge for this transaction in AMD's next report.
Investors are hating this endgame with a passion -- AMD shares fell 5.5% as of this writing, and the downward trend continues.
That's probably not the right reaction. Recall that AMD jumped 30% when the plan to unload its manufacturing operations was first announced. This relationship hasn't exactly been fruitful, including a $200 million goodwill writedown in the latest reported quarter. Don't let the door hit you in the back, darlin'; the faster AMD can end this dead-end partnership, the better.
Chief rival Intel (NAS: INTC) claims its beefy manufacturing know-how as a competitive advantage, but AMD just never had the size and scale to keep up in that race. Better, then, to let deep-pocketed investors foot the bill for expensive factory upgrades and technology research. Moreover, AMD uses worldwide foundry leader Taiwan Semiconductor Manufacturing (NYS: TSM) for some chips today and could expand that relationship going forward. It's good to keep your options open.
Yeah, this breakup is costing AMD a lot of money in the short term. It's more expensive than the results of Tiger Woods' promiscuous ways. But it's the right thing to do, nearly at any cost. If anything, I'd rather berate AMD for doing the $334 million SeaMicro deal this close to another major cash drain. This double-whammy is a risky move, kind of like dating Lindsay Lohan.
AMD is off to a good start in the new year. Some bold moves have sent stock prices on a 32% rocket ride even after today's drop. That's impressive, but Foolish analysts have found an even more promising stock for your portfolio. Learn all about The Motley Fool's Top Stock for 2012 in a special report -- free for a limited time.
At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns, and Motley Fool newsletter services have recommended buying, shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.