AMD Jumps on Spinoff Buzz - TheStreet

AMD Jumps on Spinoff Buzz

Shares climb again as the company's shareholder meeting nears.
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SAN FRANCISCO --

Advanced Micro Devices

(AMD) - Get Report

shares were up sharply Tuesday on rumors that the chipmaker is getting closer to unveiling its long-awaited restructuring plan.

The money-losing chip firm has promised investors that details about its new manufacturing strategy are coming, and Wall Street was abuzz in speculation Tuesday that AMD may use its annual shareholder meeting later this week to announce the plan.

According to one sell-side analyst, speaking on condition of anonymity, the rumors have AMD splitting into two separate companies, one with in-house chip manufacturing and the other as a purely chip design-focused firm; or perhaps into three companies, with a third spinoff focusing on graphics chips.

While none of the hypothetical scenarios are particularly new, the rumors may be getting some momentum because of AMD's upcoming shareholder meeting on Thursday.

"It feels like a rumor that's taking off because it has some merit in that we know an announcement is coming at some point," said the analyst, adding that the shareholder meeting nonetheless seemed like an unlikely forum for AMD to announce the news.

Shares of AMD were up 9.2%, or 60 cents, at $7.13 on more than twice the average trading volume mid-Tuesday. The stock is up nearly 20% in the past week.

The stock's run-up also comes as AMD and rival

Intel

(INTC) - Get Report

exchanged another volley in their ongoing legal battle. On Monday, AMD released a court filing laying out evidence for its allegations that Intel coerced PC makers including

Dell

(DELL) - Get Report

and

Hewlett-Packard

(HPQ) - Get Report

to not use AMD chips in their products. Intel filed its own brief rebutting the claims.

AMD has seen its sales slump, and lost a cumulative $4.3 billion in the last six quarters, as the company has faced fierce competition from Intel and suffered from delays in releasing its new products.

It's been more than a year since AMD first announced it was exploring shifting to a so-called asset-smart strategy, in which a greater portion of its chip manufacturing is outsourced to third parties. But AMD CEO Hector Ruiz has been tight-lipped about details, contending that to do so would tip the company's hand to competitors.

AMD currently owns two manufacturing facilities in Dresden, Germany, and has the option to build a third facility in upstate New York. Using contractors to manufacture its chips would potentially save AMD billions of dollars in capital expenditures, at a time when the company is losing money and weighed down by $5 billion in debt.

During AMD's quarterly earnings conference call last month, Ruiz said AMD was making "tremendous progress" in finalizing an asset-smart strategy and hoped to share details in the near future, which he described as anywhere from 90 days to the remainder of the year.

Thursday's annual shareholder comes earlier than that time frame, and the venue also struck some observers as puzzling. Shareholder meetings are not typically big on news announcements, and the events usually receive little press coverage unless a significant shareholder resolution is being voted on by shareholders.

American Technology Research analyst Doug Freedman says AMD's stock run-up may also be the result of excessive shorting.

"I never understood why guys were shorting it at 6 bucks," says Freedman. "That gets you violent moves to the upside."