April 24, 2007 – Days after posting mounting losses and suggesting ways to cut costs and improve its cash position, AMD is launching a $2.0 billion sale of Convertible Senior Notes due 2015 in a private placement (with another $200 million reserved for overallotments), with proceeds used to pay off existing loans and for capital expenditures.

Barron’s analyst Eric Savitz notes a range of Wall Street reactions. Some argue that the cash infusion will tide AMD over until it can reap benefits of its Barcelona ramp and new graphics processors. Others, though, see this as a short-term fix that will likely throw more fuel on the damaging price war with Intel, and believe that AMD needs better product execution and strategic changes.

The announcement comes after AMD discussed more specific plans to push back into profitability following disappointing 1Q07 results. Those plans include moving more toward an “asset-lite” strategy for some areas of the business, as well as ways to raise more cash, something analysts have been saying for weeks. AMD has even expressed openness to a private investor deal.

Details of AMD’s new $2B notes offering are as follows:

– 6.00% Convertible Senior Notes due 2015, interest paid semiannually (May 1, Nov.1)
– Initial conversion rate of 35.6125 shares of common stock per $1000 principal amount of notes, equivalent to $28.08/share
– A capped call transaction with strike price matching the conversion price, with a cap price of $42.12/share

AMD expects net proceeds of about $1.97 billion (or $2.17B if overallotments are filled), of which $500 million will be used to repay a portion of an existing term loan from Morgan Stanley that was used to acquire ATI Technologies. The rest of the proceeds will be applied to general corporate purposes, including working capital and capital expenditures.