Earlier this month, AMD (NYSE:AMD) sold its corporate campus in Austin, Texas, to a real estate firm Spear Street Capital, generating $164 million in cash. The transaction will close by the end of March and AMD will sign a 12-year lease on the building. AMD will take a $50 million charge in Q1 2013, to mark a loss on the selling price compared to the carrying value of the property. Historically, AMD sold and leased back its headquarters in Sunnyvale, California in 1998 and a major site in Markham, Ontario, Canada in 2008. It has also started marketing another property located in Austin, Texas, which is largely unoccupied.
AMD is a leading PC microprocessor manufacturer and in addition to the slowdown in PC shipments, its business has been severely hit by certain internal factors including leadership woes, a manufacturing glitch and a slow response to rapidly changing consumer needs. The company made a net loss of $1.18 billion in 2012, and has been struggling to turn around its business.
In Q3 2012, AMD announced a restructuring plan in an effort to strengthen its competitiveness and reduce its expense base by 25% in light of the broader macroeconomic issues. The plan aims to diversify the company beyond the PC market and target other adjacent markets including dense serving, new embedded markets and lower-power form factors where its IP provides differentiation and a better opportunity for it to grow its share. AMD intends to drive 40% to 50% of its portfolio to these faster growing markets in the future.
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In addition, AMD’s restructuring plan aims to control its mounting costs by increasing operational efficiency and getting rid of non-core assets. With the change in its operating model, the company aims to reduce its operational expenses to $450 million and deliver break-even results with $1.3 billion in revenue by Q3 2013.
Declining cash reserves, mounting debt and negative cash flows from operations for three consecutive quarters have dampened investor confidence in the company. By unlocking much needed capital for AMD, we feel that the sale and lease back of its Texas property is a good move for the business.
To know more about steps taken by AMD to turn around its business, read our article – What Factors Can Turn Around AMD’s Business?
Our price estimate of $3.15 for AMD is at a premium of over 10% to the current market price.