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Shares of AMD fall on GlobalFoundries news

The Associated Press

Shares of chipmaker Advanced Micro Devices Inc. fell in trading Monday after it cut ties with its primary chip manufacturer, GlobalFoundries, as investors worried that the move would affect chip prices.

THE SPARK: AMD spun off its chip-making operations into GlobalFoundries, based in Milpitas, Calif., three years ago but remained a minority stakeholder. The companies announced Monday that AMD is selling its stake to Abu Dhabi's Advanced Technology Investment Co.

GlobalFoundries will continue to make AMD chips but no longer exclusively. The deal also changed the method that the companies use to determine the prices AMD pays.

THE BIG PICTURE: AMD is a tremendously volatile stock and any change tends to rock its price.

In this case, the deal has AMD giving up its less than 10 percent stake and paying GlobalFoundries $425 million over four quarters. AMD expects to book a one-time charge of $703 million in the first quarter to cover the cash payment and other costs.

Production issues last year at GlobalFoundries strained the relationship, and both parties appeared eager to end the arrangement. AMD said the deal did not affect its earning guidance.

THE ANALYSIS: Analysts saw the news as a largely positive move. But they said it indicates AMD will move some of its manufacturing, which introduces risk of new problems.

The stock fell because investors saw the new pricing agreement with GlobalFoundries as riskier than before as AMD lost some leverage with the company.

SHARE ACTION: Shares of AMD fell 38 cents, roughly 5 percent, to close at $7.08 but then more than recovered that drop after hours. Even including the decline, AMD shares have risen 30 percent since 2012 began.