AMD to Take a Big Write-Down of ATI Assets
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UPDATED: Swallowing ATI Technologies seems to be causing some financial heartburn for AMD, and the company now needs the financial equivalent of Alka Seltzer: a big write-down of intangible assets related to ATI.
In a brief 8-K filing with the Securities and Exchange Commission, AMD said the current carrying value of its goodwill (translation: the value of ATI's assets) "was impaired" (translation: it's worth a lot less than planned).
AMD reached this conclusion based on an updated financial analysis for the year ahead, when it does its annual goodwill examinations. It also comes one day ahead of an analyst conference in New York, where the company will likely face questions about the write-down.
In the filing, AMD reported it expects that the impairment charge (translation: write-off) will come in the current quarter and "will be material, but the Company has determined that, as of the time of this filing, it is unable in good faith to make a determination of an estimate of the amount or range of amounts of the impairment charge." An amended filing with estimates or ranges of estimates will be filed within four days.
AMD spokesman Drew Prairie said ATI had a bad Q4 in 2006 and has been slowly recovering from it. During the quarter, the unit's HD2000 video card line were delayed coming to market. ATI also faced problems stemming from a troubled "mobility customer," though he did not elaborate. Since then, the division has been recovering.
"It shouldn't be read as a statement that businesses are performing worse in this quarter or Q3 or Q2 than they were a year ago," he told InternetNews.com. "It's not like an analysis was done and said they've been sliding for the year."
Prairie said the charge, whatever the figure, would be a balance sheet adjustment and won't impact the company's cash holdings. It will come as part of GAAP results during the fourth quarter financial report.
AMD paid $5.4 billion for ATI in July 2006 and has been struggling with the acquisition ever since. It has missed deadlines, most notably for the Quad Core Opteron and has fallen behind Intel in getting product to market, allowing Intel to regain a lot of lost ground. It recently sold an 8.1 percent stake to an investment firm in the United Arab Emirates for $622 million, giving it a badly needed cash infusion.
A common strategy for companies facing a financial hit is to take the damage all in one quarter, so they tend to throw every troublesome financial issue out at once to immediately clear the deck.
Kathleen Maher, vice president and editor-in-chief of the Tech Watch newsletter from The Jon Peddie Group, thinks AMD might be doing just that.
"AMD has plenty to wade through themselves in terms of their competition with Intel and they missed a few of their deadlines and goals," she told InternetNews.com. "It probably does make sense for them to put it all in a pot and start with a clean slate. AMD has a lot of junk to clean out of its closet for the new year."
Still, she thinks the merger was sound and "inspired."
"It recognizes the way the computer industry is going," she said. "The idea of combining the two companies and their techs was a good one. And I think [former ATI CEO] Dave Orton was smart to get as much money as he did."
She expects some belt-tightening, which is typical after a big write-off. "As to death, destruction and blood in the streets, that's not going to happen," Maher said.
Updated to add quote from AMD spokesman, correct the spelling of the former ATI CEO's name.