The company failed to win majority shareholder approval for a spin-off of its manufacturing facilities.  This will essentially delay the process a week (or more) so that more investors can respond to the plan.  The process has been delayed until February 18.

It appears that only 42% of eligible voters responded, below the majority vote needed to spin off the manufacturing operations.  It appears that AMD’s “The Foundry Company” won’t become independent.

Advanced Technology Investment, associated with the government of Abu Dhabi, will co-own the company with AMD.  The aim is to bolster AMD’s balance sheet via an $800 million infusion and a shift of some $1.2 billion debt away from AMD’s books.

The vote is the last major condition upon this process from what we have been able to see.  We think that this will ultimately get approved.  But…

We aren’t sold that it will resolve the company’s problem.  This move will free up significant operating capital, but AMD seems so far behind Intel because of its problems.  Dirk Meyer became CEO just as the bottom dropped out of technology spending.

This may just put off the hangman a little while longer.  Shares are down about 6% at $2.21 today.

Jon C. Ogg
February 10, 2009

This will lead its 32 nanometer manufacturing technology that will be used to build faster, smaller chips that consume less energy.  Intel believes these chips will become the basic building blocks of the digital world.  It also looks like its largest investment in company history for a new manufacturing process.

The investment will be made at existing manufacturing sites in Oregon, Arizona and New Mexico.  If you read into what the company is saying, it really has a “US-Centric” feel to it.  This is part of a total Intel workforce of more than 45,000 in the U.S., where the company says accounts for more than 75% of its sales overseas, carries out roughly 75% of its semiconductor manufacturing in the U.S., and about 75% of its R&D spending and capital investments are also made in the U.S.

“Westmere” is the family codename of the chips and will initially be used in desktop and mobile mainstream systems that combine high-performance micro-architecture with graphics capability integrated into the processor.  The start of the roll-out is slated for 2009 and then into 2010.

Here is where we take issue.  First off, we commend the company having the foresight to plan for when growth does inevitably return.  But there is an issue of the timing.  If the “growth resumes from a much lower yardstick” as it signaled before, then this may just be to keep competitors from getting an extra leg up.  That would either be Advanced Micro Devices (NYSE: AMD) or take aim at NVIDIA (NASDAQ: NVDA).  Intel killed AMD in the past.  It was able to leap-frog the lesser company after AMD initially surpassed it in the dual-core arena.  That AMD advantage didn’t last long.  Either way, this sounds like it could come at a large expense at a time when pinching pennies is “the new cool.”

But this is a win for semiconductor cap-ex and equipment makers. Applied Materials Inc. (NASDAQ: AMAT) reports earnings today.  Shares popped, but then dropped.  We are also seeing a mixed bag in shares of Novellus Systems, Inc. (NASDAQ: NVLS) and KLA-Tencor Corporation (NASDAQ: KLAC).

We hope the company is getting some extra tax credits or at least some state subsidies for this.  Otherwise this is going to just bite into margins over the next two years.  Consumers are buying more and more of these cheap PC’s and netbooks, and that is going to be a hard habit to break for much of the country (and world).

Jon C. Ogg
February 10, 2009

But AMD did the unthinkable a couple years back and that decision is made at the top.  It picked a pricing war with near-monopoly Intel Corp. (NASDAQ: INTC) and as it turns out it really seems that the limitations of Moore’s Law seems to apply to AMD much more than Intel.  This could have had a shot at being a David vs. Goliath, but this David turned out to be really near-sighted and incapable of using a sling.  Now AMD can’t even really just back away from higher-end chips to focus on the lower-end because it gets to fight Intel there too.  Intel seems to have its legal advantages intact too.

NVIDIA (NASDAQ: NVDA) also seems to have an upper hand over AMD’s ATI unit, although we know if ATI loyalists that would argue this and each generation of new graphic chips from one to another seems to leapfrog the competing graphic chip.  As far as the computing power that we use ourselves in computing and gaming it is more of a six-five pick-em.  But AMD has been criticized over and over for its ATI acquisition.

We criticized its first financing round as being voodoo financing, although the second round didn’t seem as bad.  We have not heard of any Hail Mary passes that are expected during an upcoming analyst meeting, although we can’t hang our hats on that with any certainty.

We also have pointed out how we found some notes from this Monday that are turning out to be reality about serious problems with the new Barcelona chips and its chips were falling far short of the GHz goals originally set out and short of you know who’s processors.  We also would take the "show-me attitude" in believing that just because AMD indicates that a quarter delay is really just a one quarter delay.  It is quite possible that analysts will have to trim down estimates yet again.  As it stands now AMD is not expected to be profitable this year nor in 2008 and investors have seemed to shift to preferring to buy quality rather than hope.

Ruiz also has an image issue that can’t really be repaired overnight.  Some analysts have noted how he has been very difficult to pin down historically.  One analyst has said directly that it seems a little different than before because he cannot ignore a 75% stock drop as an anomaly and he is almost forced to deal a bit more openly.  But having many of your underlings having very little respect for you and having an almost open lack of respect shown when he’s not around can’t be good.  All those employee stock options aren’t really worth any money when your stock hits 52-week lows every single day.

Our contacts tell us of in-fighting between design groups and that many managers don’t exactly think all that fondly of Mr. Ruiz.  We will be the first to admit that this is the same as the legal term hearsay and that if it was a trial it would not be admissible.  But we’ve seen that most of he hearsay from some of our sources on this topic is usually true on the bad things behind the scenes and turns out to be gossip or rumor when it is positive.

This last financing investment announced out of the Middle East did actually create a rift from some shareholders who have been holding AMD stock.  The last reported $622 million investment from a unit of Mubadala Development Co. in Abu Dhabi represents roughly an 8.1% stake and some institutions have considered it an insult since they didn’t get to participate.

But there is actually at least some good news for shareholders:

• AMD doesn’t need cash now;
• AMD may have a large grant coming down the pipe and it may be able to monetize some of its existing fabs;
• Analysts are already mostly negative, so downgrades may just be "estimate cuts.’
• The ATI unit could be converted to cash and the company could clean its books entirely, although it is a written down asset;
• AMD has an implied permanent safety net  in that it is deemed to be a "must survive company" because it keeps Intel (NASDAQ: INTC) from being a total outright monopoly;
• The worst of the stock drop is likely behind it if you believe they have a perpetual place; It is quite possible that an IBM (NYSE: IBM), Taiwan Semi (NYSE: TSM) or another giant tech company could come in and partner with AMD.  We cannot neglect that possibility, although they may want to install their own leader to save it.
• An activist investor like Carl Icahn could always decide that enough is enough and want to stir up the pot, although we think he’d rather focus on profitable companies that can be made more profitable.

Lastly we want to caution one key issue:

• There are very few readily available names that could step into this role and immediately make a difference.  With no heir apparent Ruiz might be able to shun any serious efforts against him for quite a long time.  In light of reports that Dell isn’t focusing on AMD chips to the point that had been hoped, you can probably forget about a Kevin Rollins being asked to step in.  When we have discussed an heir apparent or even a candidate with others there has yet to be a single solid candidate that everyone likes or would say is the perfect replacement.  picking one senior manager may result in others defecting.  Once again, just because things don’t go well under a leader doesn’t mean he or she can be readily axed without a long hard fight.

At roughly $9.00, shares are only 2% or 3% above 52-week lows.  The 52-week high is $23.00, but the two-year high is above $40.00.

GUIDELINES FOR OUR CEO SELECTION

AMD probably won’t appear in our special situation newsletter but may appear in our "10 Stocks Under $10" newsletter.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Here is how the quarterly earnings and growth rates stack up against each other:

• VMware showed its financial filings of its second quarter on Monday (which were already mostly known), and the results were $296.8 million in revenues (up almost 90% over Q2 2006) and earnings rose over 100% to $34.2 million, or $0.10 on an EPS basis.
• Adobe’s earnings which were not previously known also came out on Monday.  The company posted profits of $205 million, or $0.45 EPS on a non-GAAP basis, on revenues of $851.7 million (up 41% from the same period in 2006).  The company did already acknowledge that its growth rates would slow in 2008 because it acknowledges that some growth rates are sustainable for only so long.

Market Cap Comparisons:

• Based on a 332.5 million share count on VMware and a $77.50 stock price, we get a $25.768 Billion market cap.  The calculations on the true share count create different market caps around the web: Yahoo! Finance lists $25.78 Billion as the market cap, Google Finance lists the share count at 382.94 million and gives it a $29.68 Billion market cap, MarketWatch lists the shares outstanding as 375.12 million and gives it a $29.07 Billion market cap,  and AOL Money & Finance severely undercounts the shares ate twice the free float so its market cap is only listed as $5.82 Billion.
• Adobe calculated on Monday that for the coming quarter, its share count will be 588 million to 590 million.  Lets split the difference at 589 million and with a $43.50 stock price we get an implied market cap of $25.6215 Billion.
• If you want to compare other desktop and server software companies and the market caps, here goes: Citrix (CTXS) $7 Billion; Symantec (SYMC) $17.5 Billion; Intuit (INTU) $9.9 Billion.
• The actual market caps on an exact basis is not the important part of this.  The most important part is looking at the comparison of how close each market cap is to the other.

The truth is that virtualization the next "next thing" and as a sector virtualization is going to enjoy larger growth rates for some time.  It will arguably even be immune from economic shifts in 2008 as the growth rates are coming regardless of the economy.  Maybe virtualization will grow at 50% instead of 70%, but this is still where things are going.

We still believe that if this VMware stock conundrum didn’t exist because of an incredibly low float that shares would not be where they are today.  This is an extremely valuable company and we won’t refute it or even fight it.  Just understand that this low float manipulates that price moves and we have noted already how investors and traders alike are using the various call options in multiple months and multiple strike prices to play the stock as a stealth trading basis.

American Express (NYSE:AXP) was also downgraded at Merrill Lynch from a "Buy" rating to a "Neutral."  2008 EPS were cut to $3.85 from $3.96 and even 2009 cut to $4.20 from $4.33.

Ironically, this downgrade that includes American Express is having a share indication impact on Merrill Lynch’s own share price.  There have not been trades yet that crossed the tape pre-market, but indications have the stock around $74.00 to $74.60, versus the $75.14 close yesterday. 

Sometimes butchers do cut their fingers off if they take too wide of a cut.

Jon C. Ogg
September 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.