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Advanced Micro Devices Inc. to Buy Unit, Build Business Outside PCs

Posted on: Thursday, 7 August 2003, 06:00 CDT

Aug. 7--Advanced Micro Devices Inc. signaled Wednesday that it aims to expand its fledgling business that develops processor chips for a variety of noncomputer products, including television set-top boxes and home networking gear.

AMD said it has agreed to buy a small business unit from National Semiconductor Corp. that designs and sells Microsoft-compatible processor products for noncomputer products.

The purchase, for an undisclosed price, gives AMD a new product line -- the Geode family of Microsoft-compatible processors. Such products eventually could help buffer AMD's primary business lines -- computer processors and flash memory chips -- which have suffered throughout the downturn in technology demand.

National said early this year that it wanted to sell the unit because it did not fit well with the rest of its business. The division's sales are less than 5 percent of National's annual $1.7 billion in sales, the companies said.

The National unit will become part of AMD's Austin-based Personal Connectivity Solutions group, which was created last year when AMD bought Alchemy Semiconductor Inc. The connectivity group employs more than 300 people in Austin and Dresden, Germany.

AMD won't be adding positions in Austin, but it will offer jobs to 132 chip engineers and marketers who were part of National's development team in Longmont, Colo.

Key customers of the division being acquired include Microsoft's "smart display" unit and Wyse Technology Inc., which makes networked desktop computers.

The connectivity group, which sells low-power processors for portable products, has rung up more than 200 engineering design wins for its chips, but so far only a few of those wins have turned into products that are shipping in large quantities. One of those high-volume products is Apple Computer Inc.'s Airport Extreme wireless networking equipment.

Building up the company's noncomputer chip business is a sound move for AMD, said analyst Will Strauss with Forward Concepts of Tempe, Ariz.

In recent years AMD had sold off other product lines and concentrated on making and selling processor chips for personal computers and flash memory chips for cell phones and other products.

"They were getting close to being a one-trick pony," Strauss said. "It makes sense for them to diversify. Alchemy was a good buy for them. This deal is going to give Billy Edwards (AMD's business group director) some other intellectual property to make use of."

Another analyst, Tim Bajarin of Creative Strategies in San Jose, Calif., said the acquisition enables AMD to use its experience in the processor business to move into new markets.

"This is about the future of digital technology as it moves into all these new devices that consumers will use," Bajarin said. "You can only sell so many personal computers, which both Intel and AMD are finding out right now."

AMD doesn't have a lot of money to pour into the new product group. The company had $739 million in cash on hand June 30, down from $1.1 billion a year ago.

The company lost $286.5 million on sales of $1.36 billion in the first half of 2003. Senior executives said in July that sales of the personal connectivity business group were not yet large enough to report as a separate category.

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(c) 2003, Austin American-Statesman, Texas. Distributed by Knight Ridder/Tribune Business News.

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