Ahead of its financial powwow, AMD takes ATI writedown

Advanced Micro Devices said in an SEC filing Wednesday that it will take a goodwill impairment charge due to its October 2006 acquisition of ATI Technologies.

These goodwill impairment charges are taken when a company doesn't expect to get its expected returns on an acquisition. AMD is basically punting on the idea that ATI will generate the value predicted at the time of the acquisition. It's unclear how big the write-off will be, but the goodwill on AMD's books is about $3.2 billion.

The ATI write-off, which isn't entirely unexpected, comes a day before AMD hosts its annual analyst powwow at the New York Stock Exchange. Expectations couldn't be lower among the Wall Street types. Here's what AMD is expected to talk about:

The fallout from the Barcelona launch. AMD has had a rough time getting Barcelona chips into OEM hands due to manufacturing issues and chip flaws. As a result, AMD is shipping far fewer units than it initially expected. Citigroup analyst Glen Yeung said in a research note that Barcelona and delays in the Phenom desktop processor will be front and center. Yeung said the implications for the "unsuccessful Barcelona launch" will include weaker than expected gross margins.

AMD's balance sheet. Analysts indicate that cash flow is a major concern for AMD since it is expected to post operating losses throughout much of 2008. Yeung predicted that AMD will have about $720 million in cash at the end of the fourth quarter. Analysts will be listening closely to figure out how AMD will pare expenses and help its balance sheet. Last month, AMD secured a $622 million cash infusion from Dubai's Mubadala Development Co., which now owns 8.1 percent of AMD. The investment diluted existing shareholders by 49 million shares, but gave AMD some wiggle room.

AMD's asset light strategy. For a year, AMD has talked about an "asset light" strategy that would outsource production of chips. This model would obviously save capital expenses and perhaps boost AMD's profit potential. Yeung said that TSMC will begin production of low-end AMD chips in the first half of 2008. AMD could confirm the TSMC relationship and sell some assets. Longer term it is unclear whether an asset light strategy can keep up in the semiconductor arms race. Intel sees its manufacturing prowess as a competitive advantage. Can AMD leapfrog Intel when it relies on others for manufacturing?