SAN JOSE, Calif. - Struggling to climb back to profitability, Advanced Micro Devices Inc. suffered another setback Friday when the chip maker disclosed that two businesses it acquired in a pricey acquisition were underperforming.
AMD said the businesses' values would have to be reduced by $880 million. It's the second time AMD has had to slash the value of businesses it absorbed as part of its pricey — and controversial — acquisition of graphics chip maker ATI Technologies Inc.
Shares in AMD fell 12 cents, or 2.4 percent, to $4.84 Friday, after earlier changing hands at $4.60, their lowest point since October 2002.
Sunnyvale-based AMD is the world's No. 2 maker of microprocessors, the brains of personal computers.
AMD and its much-larger rival, Intel Corp., are both pushing deeper into graphics technologies, typically handled on separate chips, as the demand intensifies on computers to render better graphics for Internet video, computer games and high-definition movies.
Santa Clara-based Intel has chosen to beef up the graphics capabilities of its chips in-house, while AMD decided to buy its way in with the $5.6 billion acquisition of ATI in October 2006, a decision that is still hurting the company financially.
AMD is now the world's second-largest maker of standalone graphics chips, behind Santa Clara-based Nvidia Corp.
In a filing with the Securities and Exchange Commission, AMD said it recently discovered that its business units that make chips for cell phones and digital televisions, both acquired as part of the ATI transaction and considered "noncore" parts of AMD's operations, weren't performing up to expectations.
As a result, the company plans to write down the value of their goodwill, or intangible assets such as reputation, and take charges of $880 million in the latest quarter, which ended June 28.
AMD had previously written down ATI's overall value by $1.6 billion in January, in a staggering reassessment that indicated the perception of ATI in the market had slipped dramatically.
Taken together, AMD has effectively said that ATI is now worth 44 percent less as a company than when AMD bought it.
Investors have punished AMD's stock as they await word about the company's plans to sell off slumping business units or even some of its factories, a huge expense for semiconductor companies. More details could emerge Thursday when AMD reports financial results for the second quarter.
AMD was flying high just two years ago, with a stock near $40 a share in February 2006, as AMD was stealing substantial market share from Intel in the lucrative server business, a market AMD didn't enter until 2003. But its fortunes have faded since then on investors' concerns about the company's huge losses and faltering competitive position.
AMD has racked up more than $4 billion in losses over the last year and a half as competition from Intel intensifies and AMD struggles to recover from its own product delays.
AMD also said Friday that it plans to take a $32 million restructuring charge in the latest quarter, mostly for employee severance payments. The company plans to cut 10 percent of its global work force, or about 1,600 workers, by September.
AMD is also writing down $36 million in the value of its short-term investments in the latest quarter, stemming from its stake in Spansion Inc., which makes flash memory chips, and holdings in auction rate securities.
Meanwhile, the company expects to record a gain of $190 million from the sale of some chip-making equipment.
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