Though AMD has had a few golden moments in the sun, they’ve never really had an easy time. Now, things have gotten a bit tougher. Fitch, the debt ratings agency, has recently downgraded AMD’s long-term debt from a B to CCC. For context, a B rating is considered two levels below investment grade. CCC, according to Fitch’s terminology, is considered “currently vulnerable and dependent on favorable economic conditions to meet its commitments”, and is three levels below investment.
AMD’s free cash flow is expected to turn negative and dip below targets. With the great successes of tablets and smartphones, PC spending has suffered and AMD has been affected by the lowered sales. There is mounting pressure on AMD to turn things around since big payments will be due to its manufacturing partner, Globalfoundries, both this and next year for over $200 million each.
AMD isn’t sitting still, though. They’re currently restructuring the company and working a deal to save money on its Austin campus. “That may help buy a little time, but Fitch isn’t convinced: ‘Given AMD’s traditional PC markets represent the vast majority of sales, achieving the company’s target of 40-50 percent of sales from higher-growth markets will require a number of years.’”
AMD reported a fourth quarter loss and is expected to announce another round of layoffs soon. Things are not looking too good. AMD could join up with the likes of Blockbuster, Kodak, and Sony, and be another casualty of fast-changing technology trends.