AMD sells, leases back Singapore facility

August 23, 2013 | 09:01

Tags: #financial #hsbc #property #real-estate #semiconductor

Companies: #amd #ati #intel #nvidia

AMD appears to be lacking in confidence that it will hit its self-imposed deadline for a return to profit - or at least an end to its ongoing losses - next quarter, and is turning to yet another property sale and leaseback to boost its balance sheet.

AMD has been in financial trouble for quite some time, losing significant ground to long-time rival Intel in the majority of its markets. While the company's graphics division, formerly known as ATI, continues to compete well against Nvidia, even the most die-hard AMD fan can't help but admit that the company's processors - with the possible exception of its low-end APU products - are failing to offer any real competition to Intel's far more powerful designs.

The company has long promised that the lean times are coming to a close, however, claiming back in April that it is due for a comeback any quarter now. To be fair to the company, while its losses continue they are slowing - the company's last quarter is looking a lot healthier, and soon the company will be enjoying the benefit of having its APU technology power both the Sony PlayStation 4 and Microsoft Xbox One next-generation games consoles.

Sadly, AMD doesn't have time on its side: last year, the company promised its investors that it would have at least reached break-even - if not outright profit - by the end of this financial year, and the clock is ticking. Accordingly, it has been boosting its bottom line with property sales - starting with the sale of its Texas headquarters back in April, which raised $164 million in cash.

A sale and leaseback, where the property is sold for a cash injection but with an agreement that the company can rent it for a fixed period for its new owner, is a neat way to boost income - but it's a short-term fix. By selling its properties, AMD receives a cash injection for the quarter - but next quarter finds itself bogged down by rent payments it wasn't previously having to make, which continues every quarter thereafter.

Now, the company has indicated that its financials aren't improving at a rate which will settle antsy investors - meaning it's time for another sale-and-leaseback deal, this time on the company's Singapore facility. The deal sees a real estate investment trust, run by HSBC, pick up the manufacturing and engineering facility for around £29.6 million in cash with the agreement that AMD will lease the property for the next ten years.

AMD, naturally, is spinning the move as a positive step in its ongoing strategy to 'reduce investments and capital in non-core parts of the business, including real estate' - and investors seem to be happy with the deal, with the company's stock price up half a percent in after-hours trading following the announcement.

AMD has confirmed that the sale and leaseback of its Singapore facility forms part of its long-term plan, and is primarily related to the company concentrating on engineering there than production. 'The sale and long-term leaseback announcement we made yesterday was not a surprise to our employees or the business community in Singapore,' an AMD spokesperson has confirmed to bit-tech. 'We shared our intention to seek a sale and long-term leaseback earlier in the year in Singapore as part of that site's transformation from a back-end manufacturing facility to an engineering centre of excellence for AMD.

'As you can imagine, you need a lot more square footage for manufacturing operations than you do for engineering professionals. With that in-mind, and as part of our restructuring effort in 2012, it made sound business sense to sell and lease back a smaller square footage area of the Singapore building.
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