Friday, November 16, 2007

What’s Sheikin’ at AMD?

The big news today is that Abu Dhabi's Mubadala Development Corp. is buying an 8.1% stake in Advanced Micro Devices for around $700 million, according to the Financial Times. This is certainly welcome news for AMD, who have been cash strapped since buying ATI a year ago for $5.4 billion. If AMD is to have a prayer of avoiding Intel’s afterburners as the latter ramps its 45 nm chips, it will need an investor with deep pockets. And who has deeper pockets than an oil sheikdom?

But why would Abu Dhabi invest in a struggling chip company in a notoriously cyclical industry? Well, if oil is trading close to $100 a barrel, and if you're sitting atop depleting reserves, you need to invest that giant pile of cash somewhere. And in the long run, for all its ups and downs, technology is still a good play.

Also, the Emirates are trying to catch up with neighboring Qatar, who have spent their money creating an almost post-modern infrastructure built around international trade. The Emirates are starting to invest heavily overseas, with AMD—while big news in the tech community—being small potatoes to them. This is further good news for AMD, who will either have to rely more on foundries for the next generation of chips or bite a very large CAPEX bullet, which their new investors can certainly afford.

As TJ Rodgers has pointed out, silicon-based semiconductors are, pound for pound, the most expensive commodity on the planet. Isn’t there some poetic resonance in the idea of oil money from the sands of Arabia helping to power the silicon fabs in America? Sounds like a good idea to me.


Loring Wirbel said...

OK, we need a multidimensional market grid for the emirates, and one of the vectors should be degree of U.S. government agency and aerospace contractor penetration - heavy for Qatar, Bahrain, Oman, Djibouti, relatively negligible for Dubai and Abu Dhabi. If you plot all these things multidimensionally, patterns will become clear. Or not.

John Donovan said...

Well, Qatar is pretty well open for business and Abu Dhabi is dusting off the doormat. Who's walking through the door is another matter.

Both need to put their money somewhere other than a money market CD or shaky US government bonds. If Abu Dhabi wants to be the next Sand Hill Road--or Blackstone or Carlysle Group--I say go for it! They'll get beaten up a lot less investing in semiconductors than they will in running ports.