If Advanced Micro Devices Inc. were to spin off or combine its manufacturing operations into a standalone company with any of its current production partners as is being speculated (see: AMD to spin-off fab operations?), the microprocessor supplier could dramatically alter its cost structure and reduce this enough to improve its competitive stance against rival Intel Corp.
While industry observers believe the asset-smart strategy could overall be positive for AMD, it could also distract management attention as it executes what would amount to a delicate transition at a time the company is struggling to vend off intense competition from Intel in the microprocessor area and Nvidia Corp. in the graphics IC sector.
The Sunnyvale, Calif., company isn't disclosing details of the asset-smart manufacturing strategy it first announced more than one year ago but industry sources expect an announcement soon from AMD, possibly ahead of or during its annual shareholders' meeting on Thursday (May 8.)
AMD's depressed shares initially surged in after-hour trading on Tuesday and rose more than one percent in early trading Wednesday to $7.20 from $7.12 before retreating again following unconfirmed reports the company plans to merge its manufacturing operations with a foundry partner and spin off the business as a separate company.
The remaining business would continue to design, market and sell the company's microprocessor and graphics IC products, according to analysts.
Such a move would help to sharply reduce the company's operating costs, giving it the much needed financial relief in its bruising fight against Intel although AMD would still face tremendous obstacles keeping up with its archrival in rolling out advanced technology products.
One area where AMD would see immediate cost improvements if it pursues a spinoff of its manufacturing operation is in its selling, general and 8administrative costs, which in 2007 and in the first quarter represented approximately 23 percent of total revenue, compared with 14 percent for Intel.
The added savings could be poured into stabilizing the company's shaky finances by paying down long-term debts of approximately $5 billion.