Moody's may cut Advanced Micro Devices
Wednesday May 7, 1:53 pm ET
(The following statement was released by the rating agency)
Approximately $903 Million of Debt Securties Affected.
NEW YORK, May 7 - Moody's Investors Service (News - Websites) placed the ratings of Advanced Micro Devices, Inc. (NYSE:AMD - News; AMD) under review for possible downgrade based on its concern that continued cash burn may lead AMD to raise another round of capital over the near to intermediate term. The ratings under review for downgrade include: Senior implied rating -- B2 Senior convertible notes $403 million due 2007 -- B3 Senior convertible notes $500 million due 2022 (first put date 2009) -- B3 Senior secured shelf registration -- (P) B2 Senior unsecured shelf registration -- (P) B3 Subordinated shelf registration -- (P) Caa1 Preferred stock shelf registration -- (P) Caa2 The review is prompted by AMD's debt of $1.9 billion at March 2003, contributing to the highest book leverage in several years. At March 2003, the company had $800 million of cash and marketable securities, down from $1.04 billion at December 2002. Some of this cash reduction relates to payments made to IBM as part of the joint development agreement with IBM that will focus on logic production at the 65 nanometer node beginning later in 2003. AMD continues to make progress in cost reductions, with a goal of break even operations at an $800 million revenue level ($715 million revenues in Q1). Achieving such revenue level over the next few quarters, however, will be challenging, as it is dependent upon uncertain market demand and pricing, as well as the company's own execution. As a result, Moody's believes there is a likely scenario of ongoing operating losses and operational cash burn, even though full year capital expenditures of $650 million will be less than expected depreciation of around $800 million. Debt maturities relating to AMD's microprocessor facility in Dresden, Germany (Fab 30) approximate $32m million in 2003 and $80 million in 2004. Borrowings of approximately $600 million related to Fab 30 are secured by that plant's property plant and equipment. AMD's $403 million 4.50% senior convertible notes do not mature until 2007, and its $500 million senior convertible notes are initially subject to a put provision in 2009. The company's $200 million secured revolving credit is mostly available, although it matures July 2003. The company has made recent progress in introducing new microprocessor product for the desktop and mobile computing markets, where unit growth helped it to report sequential revenue gains in the seasonally down first quarter. AMD also launched its long awaited Opteron processor family that can process both 32 bit and 64 bit software, and offer reduced memory latency, thereby helping to improve overall server performance and speed. With the support of operating system software vendors including Microsoft, as well as support from server vendors including IBM, the successful rollout of Opteron should help AMD to broaden its microprocessor end markets and compete against Intel for the first time in the server segment. However, adoption, pricing, and ultimate demand remain uncertain The review will focus on AMD's prospects for profitable and cash flow positive operations over the near to intermediate term; bank facility and other available forms of borrowing arrangements and their terms; AMD's ability to finance requisite capital expenditures and research and development with internally generated funds; the costs and benefits of its recently commenced joint development agreement with IBM that will focus on logic production at the 65 nanometer node beginning later in 2003; as well as the operational and financial impact of AMD's and Fujitsu's recent decision to form a new joint venture by combining the two companies' entire flash operations into one entity, which will be consolidated by AMD. Moody's expects to complete its review over the next several weeks. Advanced Micro Devices, Inc., headquartered in Sunnyvale, California, designs and manufactures microprocessors, flash memory, and other semiconductors products.
Market Data 
Markets 
AI
