AMD Clears the Deck

It spins off a small chip unit as the company focuses on its core fight against Intel.
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Advanced Micro Devices (AMD) - Get Report has spun off a small chip business as the company focuses its energy on taking on microprocessor giant Intel (INTC) - Get Report.

Sunnyvale, Calif.-based AMD announced Tuesday that it has formed a strategic partnership with

Raza Microelectronics

, whereby AMD will transfer its Alchemy line of embedded processors to RMI. Terms of the deal were not disclosed, although AMD said it will become an investor in RMI.

"RMI is a well-respected company, and we believe that RMI is in an excellent position to leverage their MIPS technology leadership to invest in the future growth of the world-class Alchemy processor family," said AMD CEO Hector Ruiz in a statement.

RMI, a privately held chip company based in Cupertino, Calif., was founded by Atiq Raza, the former president of AMD.

According to AMD, the deal will transfer the Alchemy product line and operations to RMI. An AMD spokesperson said she couldn't specify which particular assets are included in Alchemy's operations. But, she noted, "as far as the design team and the other employees, RMI is expected to extend offers of employment to some of the employees who have worked on the Alchemy product line."

AMD does not manufacture Alchemy chips itself, but subcontracts the job to a third-party foundry.

AMD's Alchemy line of chips are designed to be embedded in devices where low power consumption is important, such as portable media players and Internet access points. AMD acquired Alchemy in 2002 in a transaction whose terms were not disclosed.

While AMD doesn't break out individual financial figures for the Alchemy business, AMD's overall embedded-processor division recorded a $55 million operating loss on sales of $136 million in 2005, with Alchemy and certain networking products posting a $15 million decrease in sales that year.

Alchemy is one of two chip lines within AMD's embedded-processor division and is based on the MIPS architecture. Geode, AMD's other embedded-processor line, is based on the x86 architecture that AMD uses in its flagship line of microprocessors.

Lately, AMD has been shedding product lines that aren't based on the x86 architecture. Last year, AMD spun off its flash-memory division, dubbed

Spansion

(SPSN)

, in a public offering.

AMD's latest move has made it clear that it is refocusing 100% of its resources to take on Intel in the market for x86-based microprocessors, says Tony Massimini, the chief of technology at industry research firm Semico Research.

"And Alchemy doesn't fit that at all," says Massimini.

Of course, the market for the consumer-electronics devices that Alchemy chips are geared for is considered by many to present greater opportunities for growth in the coming years than the more mature market for PCs.

By investing in RMI, AMD appears to be attempting to keep a foot planted in the growing consumer-electronics business, while focusing day-to-day operations on its core x86 business.

The deal is part of a broader strategic relationship in which AMD and RMI will cooperate in a number of different areas, including AMD's

recently announced Torrenza platform, which allows third parties to develop co-processors to run alongside AMD's chips.

Shares of AMD recently fell 3.5%, or 90 cents, to $24.78.