Will AMD's Real Estate Assets Save the Sinking Ship?

Advanced Micro Devices (NASDAQ: AMD  ) has found a buyer for its campus in Austin, Texas. The final price might not be exactly what the chip designer had in mind, though.

About three months ago, the company announced a plan to sell this property and lease it back from the as-yet unnamed buyer. AMD was hoping for as much as $200 million of fresh cash in its pockets.

AMD's Austin campus/piggy bank/lifeline. Image source: AMD's corporate blog.

The deal is done. AMD will sell 58 acres of real estate with enough office space for 1,900 employees, and the net price is $164 million. The company will sign a 12-year lease agreement on closing. The buyer is an affiliate of privately held real investment firm Spear Street Capital, based in San Francisco with operations nationwide.

AMD is in chronic need of cash infusions like this one. The company has a bad habit of reporting negative cash flows, and it's gotten worse lately. Operating costs are running amok, even as revenue started drooping in 2012. The result is weak cash flows and often negative earnings.

AMD Cost of Goods Sold TTM Chart

AMD Cost of Goods Sold TTM data by YCharts.

This leaseback deal doesn't give AMD a whole lot of financial breathing room when you consider that it burned $471 million of cash last year. But every little bit helps, I suppose.

But I'm afraid that AMD is arranging the deck chairs on the Andrea Doria. Intel is crushing AMD in almost every way -- resources, product performance, mobile ambitions -- but even that mighty chip giant is troubled by the rapid rise of tablets and smartphones. AMD is swimming against two tides, namely massive competition and a shrinking core market.

Nokia House, or as Nokia likes to call it, a quick $220 million. Source: WikiMedia user -Majestic-.

This real estate move might even be a warning sign, an emblem of AMD's growing desperation. You know who else is doing big leaseback transaction right now? The HMS Titanic (a much larger disaster and more costly than the Andrea Doria) would be Nokia (NYSE: NOK  ) , which missed the boat on modern smartphones and recently sold its Finnish headquarters for $222 million in a similar deal.

Both Nokia and AMD are hoping for a miraculous turnaround, if only we give them some time. I'm afraid both gambits will ultimately fail, which is why I have started underperform CAPScalls on both stocks.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2013, at 10:50 PM, TEBuddy wrote:

    Good luck losing money on betting against AMD. They are not in danger of bankruptcy, and have already staged a pretty good turnaround. Their graphics processors still have industry leading performance, and will do better in 2013 than 2012, as game makers get onboard the open GPGPU computing train where AMD destorys Nvidia.

    And PS4 console win, WiiU console win, and likely the Xbox720 and maybe even the Steam box. Clean sweep of gaming console wins will only drive their discrete GPU revenue for PCs up. As games are built around the open computing architecture AMD excels at.

    They have already released a Trinity replacement APU, and there will soon be AMD performance Temash based tablets all over the place for Sony, HP, Fujitsu and exclusive at Vizio. AMD is defining what a performance or professional use tablet is. The widely successful Brazos is being replaced with Kabini and is a huge upgrade and on schedule. And the elusive Kaveri is till on the roadmap and on schedule to be released in the next 6 months. We will have Steamroller based big cores out for holiday shopping.

    AMD will be positive cash flow as soon as Kabini and Temash hit the shelves in July. And I expect cash flush as soon as Steamroller is fully implemented across all big core products. Steamroller will take Opteron to another level, back in the server game, as AMD's microserver business using low power ARM processors is ramping up.

  • Report this Comment On March 13, 2013, at 11:26 PM, rav55 wrote:

    The AMD clean sweep of the gaming console market demonstrated just how weak Intel is in 3d graphics. In the history of Intel they have never been locked out of a market niche as completely as they have been with console gaming. In fact the console design wins are a huge success for AMD and a complete disaster for Intel, I bet they are feeling a little blue right now.

    This years console release has a life of at least 5-7 years with a growth rate of about 18 million units per year. That is marketing synergy. 18 million new eyeballs looking at AMD graphics a year.

    It is also likely that since ALL THREE console builders went with AMD, gamers should expect product refreshes with an evolution of the APU and GPU to keep the console current with new technology. This would be far more difficult to do with Intel and nVidia even if Intel could produce a 3d graphics engine as remotely capable as a 1st generation AMD APU.

  • Report this Comment On March 14, 2013, at 11:59 AM, jpanspac wrote:

    I need to get me some of that stuff that TEBuddy and rav55 are smoking.

  • Report this Comment On March 15, 2013, at 11:00 PM, RedScourge wrote:

    As much as I want to see AMD win, I can't help but point out that both of the guys who were posting in support of AMD here failed to mention the facts that "industry leading performance" in their products is an entirely different thing from a phrase such as "sustainable cashflow", and that AMD literally owning the console market is a rather stunning admission that most of what is keeping AMD afloat is the ATI acquisition they made in 2007. However, I hope the former IBM staffers that AMD has been picking up manage to turn the thing around though, I like there being a competitor to Intel, and I try to buy AMD whenever I can because I find that in most relevant cases to the company I buy systems for and my personal use, it presents the best value.

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