By Mike Feibus
A few short hours after the Consumer Electronics Show finished setting the stage for the industry’s year, AMD added a new wrinkle to the outlook when it revealed that CEO Dirk Meyer was leaving. Effective immediately.
Meyer likely was a casualty of an increasingly fierce debate at AMD over what the tablet market means to the company and how it should respond. Meyer laid his cards on the table, both publicly and privately, asserting that tablets are companion devices that would not have a major detrimental impact on the PC market. Intel CEO Paul Otellini says much the same, by the way.
Intel, though, has a well-articulated strategy for addressing the tablet market, which is dominated by ARM-based processors, with its Atom series of x86 CPUs. So too does Nvidia, executing on a years-long plan to attack the market with Tegra, an ARM-based platform.
In fact, virtually every player has a strategy for the tablet market but AMD. Thus far, AMD has signaled that it would let Intel pave the way and then follow its rival into the market as an x86 player. But the sky-is-falling contingent at AMD, which advocates taking Nividia’s lead rather than Intel’s, reportedly has gained momentum in recent months. They would have the company develop or buy an ARM core to combine with its in-house graphics technology.
Meyer deserves some of the blame for the company’s waffling, and his sudden ouster suggests that AMD has decided to go down the ARM path. This much already has been speculated in the media since AMD announced Meyer’s resignation on January 10.
What’s been glossed over in the hubbub, though, is that AMD’s board designated Chief Financial Officer Thomas Seifert as the interim CEO. This suggests that the decision of whether to make- or-buy into an ARM platform already has been made — and the verdict is buy.
Prediction: AMD will merge with FreeScale Semiconductor
I’m about to pile some speculation on top of that double dose of conjecture. So take it for what it’s worth. Ready?
Here it goes: AMD will be merging with FreeScale Semiconductor. The combination no doubt looks attractive to a board that wants an ARM license and design portfolio yesterday. You could also make the case that it looks good from a company culture point of view, as there is already a lot of cross-pollination between the two companies. You could even argue that the marriage makes sense from a real-estate point of view, given that they have campuses across the street from each other in Austin, Texas.
All of this ignores the undeniable truth that FreeScale is already behind in the frenetic world of ARM-based chips for tablets. Let’s put aside the relative merits of ARM and x86, notebooks and tablets. The issues are moot if AMD goes to battle with an uncompetitive ARM portfolio.
So why would AMD’s board consider such a deal? Quite simply, because a select group of investors exploited the growing desire for a quick fix and helped turn the board’s attention toward a deal that would benefit them. Specifically:
- The Blackstone Group, a New York publicly-traded private equity firm
- The Carlyle Group, another New York-based investment firm
- Mubadala Development Company, an Abu Dhabi-based investment company
The links between the three are deep. Blackstone was the lead investor on the private equity takeover of FreeScale four years ago. Carlyle, a reliable investment partner for Blackstone, also put money into the FreeScale deal. Mubadala owns a stake in AMD and retains a seat on the board. Carlyle, by the way, owns a piece of Mubadala, and Mubadala is a strategic investor in Carlyle funds.
Though it is difficult to value a privately-held company, investors reportedly agree that FreeScale is worth less than half what they paid in 2006 — and maybe as little as 25 percent. The investors also have signaled they are ready to cash out. Last summer, they tried to take FreeScale public but abandoned the effort when prospects looked dim. Anticipating a healthier IPO climate, they plan to try again in the first half of this year.
To be sure, an equity deal with AMD would be a sure-fire way to put publicly-traded shares — AMD shares –into the hands of FreeScale investors. That would enable Blackstone and Carlyle to liquidate their investment in FreeScale without chancing an IPO. And Mubadala, with a seat on AMD’s board, could help make it happen.
Seen in that light, it’s not a stretch to deduce that the investment firms seized an opportunity to swing a legitimate market debate — the same discussion is no less lively at Intel as it has been at AMD — for its own short-term gain. In that scenario, Dirk Meyer didn’t just end up on the losing side of a healthy discourse. He was collateral damage in a deal to benefit a few at the expense of many.
I hope I’m wrong. Amid all this guesswork, though, one thing is certain: we’ll know soon enough.