Advanced Micro Devices (AMD)

  • Market Cap: $1.4 Billion
  • Z-Score: 0.21 (as of September 2008)
  • How the mighty have fallen! AMD was once a genuine competitor in the global semiconductor business. Its market share (2.9%) and global ranking (no. 8) in the industry peaked in 2006, but was still dwarfed by Intel ( INTC) that has a vise grip over the industry, with market share in the 12-13% range (Market share and ranking data source: iSuppli Corp.). AMD's market cap also peaked in 2006 at around $24 billion. Revenues peaked in 2005 at about $5.85 billion.

    However, strategic mistakes have since plagued the company. AMD over expanded its production facilities, knows as "fabs" in the industry. In 2007, the company made mistakes with the design and production of its quad-core server and desktop chips. Earlier this month, AMD announced that it was going to delay a planned spin-off in the company's attempts to outsource its chip production.

    Now, AMD faces declining market share, an economic dilemma and cash-rich competitors, such as Intel and Texas Instruments ( TXN), which can weather the current storm.

    AMD's debt rating is CCC+, which is categorized as "junk." In 2005 and 2006 combined, the company generated nearly $2.8 billion in cash flow from operations. In 2007 and 2008, the company burned a lot of cash (while I don't have the exact amount, I estimate the total to be just over $1 billion). AMD's debt grew from $1.3 billion at the end of 2005 to $4.7 billion at the end of 2008.

    When you put this all together, AMD is in serious financial distress. If the company cannot sell or spin off assets and the chip business remains weak, AMD will have to put itself up for sale or face the possibility of bankruptcy.

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