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AMD still feeling pain from ATI purchase, takes $880M charge

AMD filed a report with the SEC last week, stating that it would take an $880 …

Last Friday, AMD filed a report with the Securities and Exchange Commission (SEC) detailing an $880 million goodwill impairment charge the company will take in the second quarter of this year. The writedown was caused by the failure of ATI's handheld and DTV segments to meet AMD's expectations, which suggests (in an odd sort of way) that the desktop and mobile graphics segments are, at least, staying on track.

Combine this new impairment with the $1.77 billion impairment charge AMD took in the fourth quarter of 2007, and the CPU manufacturer has written down 50 percent of the $5.4 billion value it assigned to ATI when it bought the company two years ago. A goodwill impairment charge, for those of you who might be a bit murky on the term, is essentially an admission by the company that it paid too much for an asset.  Current federal regulations require that companies test the reported value of goodwill at least annually.  

The filing goes on to detail some of the steps AMD is taking to return to profitability. Planned corporate firings continue apace and should be completed by the end of fiscal 2008. AMD will take a $32 million charge in the second quarter 2008 to reflect the cost of employee severance packages and expects this charge to represent the bulk of its employee-related restructuring costs. Both the severance costs and the goodwill impairment charge are short-term, one-time losses. Finally, the CPU manufacturer reported a total of $36 million in "investment impairment charges" (losses). The sum total of all this activity is a $948 million impairment charge, the vast majority of which (93 percent) is immaterial.

The $68 million material cost should be more than covered by the revenue AMD expects to recognize from the sale of certain 200mm wafer fabrication tools. AMD categorizes the sale as having a "materially favorable," $190 million impact on its gross margins for Q2 2008. That's a significant chunk of cash, given AMD's net revenue of $1.505 billion in the first quarter of 2008, and it should help bolster the beleaguered manufacturer.

If there's a saving grace in all of this, it's that a goodwill impairment charge doesn't actually cost AMD any money. Selling its old 200mm equipment, meanwhile, does drop some much-needed cash into the company's pocket—the results from the one-time sale could offset a bad second quarter, or turn a net operating loss positive, depending on its size. Just to make it clear, AMD is not selling any equipment that the company would otherwise use. The parts in question are almost certainly from Fab 30, and that facility (now known as Fab 38) is currently being refitted to use 45nm process technology and 300mm wafer starts.

The big question now is what sort of second quarter AMD actually had, but we'll have to wait until Thursday for the answer.

Further reading:

  • If you're still unclear on how goodwill impairment charges work, and how recent regulations have changed the nature of such reports, check this article from 

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