Advanced Micro Devices, Inc. (AMD) recently completed an agreement to sell and lease back its Lone Star Campus to an affiliate entity of real estate investment company, Spear Street Capital.
The agreement also includes a clause according to which AMD will sublease the property to Lantana HP, Ltd. for 12 years, with an extension option to continue its operations on the Lone Star Campus.
The company generated approximately $164 million in cash from the transaction, which will be reflected in the company's first quarter 2013 financial statements when reported on Apr. 18, 2013. AMD also expects to record a special charge of approximately $50 million, primarily related to the difference between the sale proceeds and the carrying value of the property.
AMD has a huge debt balance and has been suffering from the slowdown in the global PC market. The debt also includes $225 million due to be paid to Globalfoundries in the first quarter of 2013. Though we do not expect the cash inflow from the campus sale to take care of all its current financial woes, it can provide much-needed support to the company, which is seeing its cash reserves shrink. AMD's cash reserves came down to $1.0 billion at the end of Dec 2012 from $1.77 billion at the end of 2011.
The sale is yet another effort by the company to solve its persistent money problems by working on its strategy to reduce investments and capital in non-core parts of the business, including real estate. Late last year, the company announced a restructuring plan where it cut 14% of its global workforce in order to reduce operating costs.
We believe that the weak computer market, strong competition from Intel Corp. (INTC), heavy losses, and the company’s limited success in the emerging mobile device market have forced it to take such decisions.
AMD is the world's second largest maker of microprocessors but it has been losing ground to its larger rival, Intel. The company reported a disappointing fourth quarter with net sales of $1.16 billion, down 31.7% year over year. AMD’s GAAP net loss was $473.0 million or 63 cents per share in the quarter.
Worldwide PC sales have been stagnant in recent times while smartphones, tablets and other mobile devices experienced strong growth. We believe that in order to contend with rivals like Intel and NVIDIA Corp. (NVDA), AMD needs much more resources to invest into newer business areas, site consolidations and Internet-related opportunities (mainly cloud computing).
Currently, Advanced Micro has a Zacks Rank #3 (Hold). Another semiconductor stock that is worth considering is Intersil Corporation (ISIL) carrying a Zacks Rank #2 (Buy).
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