Morgan Stanley's Take On Advanced Micro Devices/BLX Rumors
Morgan Stanley analyst Joseph Moore commented on the rumor that BLX IC Design is interested in acquiring Advanced Micro Devices, Inc. (NASDAQ: AMD) and outlined some obstacles that may face a potential suitor for the company.
Moore indicated that China’s government is interested in manufacturing more semiconductors domestically and that BLX is a public-private entity that could utilize government funding for an acquisition. Further, Advanced Micro Devices and BLX have collaborated in the past.
While the above points provide rationale for the rumors, Moore cited “significant obstacles” for such a transaction.
First, Advanced Micro's cross-license with Intel “would only transfer in a change of control at Intel's discretion; so a change of control could put all of AMD's businesses outside of China at risk, including causing a major headache for Sony and Microsoft for the PlayStation 4 and Xbox One, where AMD is the sole supplier.”
Second, the “Global Foundries agreement requires AMD to purchase substantial volume, making downsizing the business dramatically to deal with” the first obstacle very challenging.
Third, “AMD has concentrated ownership, with a 20 percent strategic shareholder,” which could be an additional barrier, according to Moore.
Overall, Moore thought that losing the Intel cross-license would further diminish opportunities for Advanced Micro and that there are easier ways for China to expand domestic computing content.
Morgan Stanley maintained an Under-weight rating on Advanced Micro Devices, which recently traded at $2.66, down 1.48 percent.
Latest Ratings for AMD
|Dec 2016||Morgan Stanley||Upgrades||Underweight||Equal-Weight|
|Dec 2016||BMO Capital||Upgrades||Market Perform||Outperform|
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