AMD's Debt Downgraded To One Notch Above Junk Status

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News Posted: Wed, Jan 30 2013 6:24 PM
Fitch, the debt rating agency, evidently wasn't pleased with what it heard during AMD's last conference call. The agency has cut AMD's debt rating from a B to a CCC-. That's the last step above default, and it echoes the agency's skepticism over whether or not AMD can continue as a going concern.

The agency writes:
The ratings reflect Fitch's expectations that negative free cash flow (FCF) in 2013 will drive cash below AMD's target level and potentially approach the company's minimum operating level. Beyond the near-term, Fitch believes a strong end market recovery and adoption of AMD's new products will be required to preserve cash during the company's multi-year transformation...

Fitch believes liquidity was sufficient as of Dec. 29, 2012, and consisted of $1.18 billion of cash and cash equivalents, including $181 million of long-term marketable securities. Fitch expects negative FCF of $250 million to $450 million for the current year, pressuring liquidity by the end 2013. The company has a stated target cash level of $1.1 billion and minimum operating cash level of $700 million.

And there you have it. This is a question of cash flow, and whether or not AMD can continue to generate it. The company has plans to sell and lease back its own HQ, which should generate between $150-$200 million. In the past, when pressed for answers as to what AMD might do to remain liquid, company executives have stressed that they had other options without giving specifics on what those options are. This latest downgrade could damage AMD's ability to raise cash if investors are scared by the prospect that the company could fail altogether.

This year, everything hangs on uptake for Kabini and Temash. It's that simple. It's that stark. The Radeon HD 8000 series won't save AMD, even if the company fielded a next-generation GPU with triple-digit 3DMark 2011 scores and the ability to crap gold doubloons when overclocked. As impressive as a card like that might be, it's not going to be enough to alter NV's entrenchment in the time frame AMD has to play with (6-12 months).

The news from Sunnyvale is that Temash and Kabini are exceeding expectations and should be excellent parts. That's exciting. But in the midst of a contracting PC market, with tablets generally eating PC's lunch, it's not automatically exciting enough. Here's hoping AMD is able to launch the new chips soon -- and pick up a number of design wins in the process. Richland, the upcoming Trinity refresh, is important -- but it's not the part that'll make or break the company's future.
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RWilliams replied on Wed, Jan 30 2013 7:02 PM

 * RWilliams attempts to trick Intel into infusing money into AMD to help keep competition alive.

Seriously... this is pretty depressing.

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acarzt replied on Thu, Jan 31 2013 11:17 AM

If AMD dissappears, Intel will have a monopoly... Then what?

Will intel dramatically raise prices just because they can?

Will advances in CPU technology slow?

Will Intel be forced to break up their company because of their monopoly?

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realneil replied on Thu, Jan 31 2013 11:58 AM

I think that AMD is necessary for the reasons stated above.

Intel would have a monopoly without AMD around, and I'm sure that they would exploit it vigorously.

Dogs are great judges of character, and if your dog doesn't like somebody being around, you shouldn't trust them.

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Dorkstar replied on Fri, Feb 1 2013 12:01 PM

Look at the bigger picture. No matter what happens, this is going to change the CPU industry in a lot of ways. Either AMD is going to bust back out into the market with a superior product, driving consumer sales through the roof, and sound business decisions, or they'll fall on their face and Intel will be busted up spurring a new contender in the CPU market. Either way, i'm excited. I'd hate to see AMD go, but they just haven't been doing anything quite right here lately.

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Monopoly? What monopoly? You guys made it sound like a company named "ARM" doesn't exist.

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If AMD dissappears, Intel will have a monopoly... Then what?

Will intel dramatically raise prices just because they can?

Will advances in CPU technology slow?

Will Intel be forced to break up their company because of their monopoly?

For what most typical computer users do on their computers they might just as well be dual or quad core ARM chips. And run iOS/Android/WinRT. Just a thought.

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