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AMD bows out of communications chip business

By agreeing to sell 90 percent of its communications division, chipmaker Advanced Micro Devices is effectively leaving the highly competitive market.

Chipmaker Advanced Micro Devices has agreed to sell 90 percent of its communications division to an investment firm, following through on its promise to bow out of the segment.

AMD plans to sell its communications products division to Francisco Partners for $375 million in cash. The 160-person division designs and manufactures integrated circuits used in analog and broadband modems, along with products marketed to telephone and digital subscriber line (DSL) providers.

Last October, AMD said it would sell both that unit and its network products division, which makes chips for networking gear. However, AMD said in March that it had reconsidered and would retain the networking unit.

The decision to hang on to the unit was made with AMD enjoying "much rosier circumstances, where the need for cash was substantially" less, said AMD spokesman John Greenagel.

Nonetheless, Greenagel said that AMD will still slow its rollout of new stand-alone networking chips from the retained communications chip unit.

"In the future, we will back away from those areas," he said. Greenagel said the company was primarily interested in keeping the skills it needs to integrate features into its processors and companion chip sets.

"(We're) focusing on what it takes to enhance the connectivity of our microprocessors," he said.

Although the company is primarily known for its desktop PC and server processors, it has made various attempts to branch out to focus on other growing uses for semiconductors. Rival Intel has made some serious moves into the communications chip market as well, acquiring several companies to help make inroads in the market.

As prices and profit margins have sunk in the traditional chip business, Intel has sought to expand beyond its core PC semiconductor base. Intel has been aggressively expanding into markets for communications chips, small "appliance" servers and personal Internet devices.

Analysts have pegged growth in the communications chip market at 25 percent annually. In comparison, the market for PC chips is expected to grow 15 percent this year.

AMD says the decision to rid itself of the communications business is a pragmatic reaction to the realities of the chip market.

"It's primarily a matter of focus," an AMD spokesman said, noting that AMD had total sales last year of $2.9 billion, while the communications division's revenues were $168 million.

AMD's core businesses--PC processors and flash memory chips--are "resource intensive," according to the spokesman, and put AMD up against an "800-pound gorilla--Intel."

Francisco Partners is a private investment firm that focuses on business in the technology sector.

The deal will close in the third quarter of this year and calls for AMD to provide fabrication and manufacturing services to Francisco.

Greenagel said that AMD is keeping a 10 percent stake in the new company and has an option to buy 10 percent more. Greenagel said that gives AMD some potential upside if Francisco Partners takes the unit public, something he said they have said they intend to do.