Monday, May 29, 2006

AMD's balance sheet

To help those pondering the third factory news (or conversion of Fab30 to Fab38), I have prepared the following table with the help of the data available in Google finance about AMD:

In Millions of USD (except for per share items) As of 2006-03-26 As of 2005-12-25 As of 2005-09-25 As of 2005-06-26 As of 2005-03-27
Total Equity 4709.92 3351.84 2974.24 2846.61 2934.7

Total Common Shares Outstanding 483.39 435.53 401.96 396.33 394.7

Equity per share 9.74 7.7 7.4 7.18 7.44

Approximate stock price at quarter ending 36 31 23 17 16

Approx. Share Price/Book Value ratio 3.69 4.03 3.11 2.37 2.15

As we may see, when AMD was at $36 it wasn't even trading at 4x book value. Today, at $31+, we are, relating to the latest report, at 3.2x book value. This severely discredits the accusations of stock dillution formulated against AMD. In any case, it is important to see how much the book value of the company has risen, being so big, it is very notorious and phenomenal.

Assuming that the 2.5 G$ investment is raised half and half between stock issuance and debt, the stock holders equity will grow by 1.2 G$. At a price of $30 per share, we are speaking about 40 M shares, or 8.3% of the float. Assuming 3x share price to book value, that means that the infusion of 1.2 G$ translates to (100% + 3*8.3%)/(100% + 8.3%) * $31 = 115% * $31 = $35.75. Take into account that the 15% share price will be absorbed along the following 18 months.

Of course that there are more details involved such as the expenses of decomissioning Fab30 to make it Fab38, but I think the general approach works, do your own calculations if you want and let us know of your results.

[ Update May 30 ]
Look also at the dramatic decline of Inventories in the last two quarters. This speaks of a company that is selling off all of its production (Q1 06, Q4 05, Q3 05, Q2 05, Q1 05)
Total Inventory 337.22 388.63 931.76 911.16 846.15

As a comparison, look at the financials for Dell, and you will see the opposite: 20+% reduction in Equity, a Book Value of about $1.5, meaning a multiplier of more than 10x!!