AMD could bite Intel with cash infusion

Facing severe pressure from chip rival Intel and four consecutive quarterly net losses, a cash infusion by an Abu Dhabi government investment arm could help struggling chip maker Advanced Micro Devices remain
competitive.

Mubadala Development Company, in Abu Dhabi, United Arab Emirates, paid US$622
million to acquire an 8.1 percent stake in AMD on Friday. Mubadala Development
is owned by the Abu Dhabi government.

AMD will invest the money in a long-term strategy for research and development,
products and manufacturing, said Drew Prairie, a spokesman for AMD. The money
may be used toward the development of "Fusion," which will integrate
a GPU (graphics processing unit) and CPU on a single die. Fusion is expected
to be delivered by late 2008 or early 2009.

The deal should help AMD be competitive with Intel by providing the cash to
develop new chip technologies, said Richard Doherty, research director at The
Envisioneering Group. AMD needed the money to invest in fabs, research and development,
and talent to develop new chip architectures, he said.

AMD is currently developing processors at 65 nanometers and losing processor
market share to Intel, which this week released the power-efficient 45-nanometer
Penryn chip. Intel is also investing heavily to open new fabs to manufacture
45-nm chips, so AMD needs to invest in R&D and quickly develop its future
chip architectures to keep up with Intel, Doherty said.

Doug Freedman, an analyst with American Technology Research, agreed. "The
65-nm node has not been smooth sailing for the company. Investors are more focused
on the 45-nm node," Freedman said.

AMD next week is expected to launch the "Spider" platform, which
includes the next-generation 65-nm quad-core Phenom processor that will better
support graphics cards to deliver high-quality graphics to PCs. In a financial
earnings call last month, AMD said it would jump to the 45-nm chip manufacturing
process by mid-2008.

"If AMD can keep its innovation gear train moving, they can give Intel
a good run for its money," Doherty said. He has high hopes for AMD's ability
to continue to be competitive. Demand for PCs should remain high and there will
be space for all three x86 competitors -- Intel, AMD and Via -- to operate in
the market, he said.

The investment also has analysts speculating that AMD could build a fab in
the Middle East in the next five years, Doherty said. AMD competitor Intel has
a presence in the Middle East, with a chip plant in Israel.

In addition, because Mubadala invests in education, the AMD deal could ultimately
empower technology education in the Middle East, Freedman and others said.

Mubadala's investment in AMD is independent and not related to any specific
initiative, said Richard Mintz, a Mubadala spokesman in Washington, D.C.

Mubadala will remain independent of AMD's operations and didn't ask for a spot
on the company's board, Mintz said. Mubadala felt AMD's management team was
strong and acquiring a minority stake would result in a long-term return, he
said.

Mubadala, which invests in a wide variety of industries, could be looking at
gaining relationships in the technology industry, Freedman said. The investment
in AMD is consistent with Mubadala's strategy as a long-term investor, he said.