Advanced Micro Devices Inc., the second-largest maker of personal-computer processors, rose to the highest level in six weeks as some investors bet that its largest shareholder could help avert a cash shortfall.
The stock advanced 7.3 percent to $2.36 at the close in New York, the highest since Oct. 18. Shares of the Sunnyvale, Calif.-based company have lost 56 percent this year.
Mubadala Development Co. extended its stake in AMD (NYSE: AMD) to about 19 percent including warrants and took an extra board seat last month, making it more likely that the investment arm of the government of Abu Dhabi would bail out the company if cash reserves dipped too low, said Cody Acree, an analyst at Williams Financial Group.
“If you have a lender of last resort like that, what’s the potential of you not having options?” Acree said.
Mubadala became the largest shareholder of AMD in a transaction announced in 2008 under which the investment company bought the chip-maker's manufacturing facilities to create a made-to-order semiconductor producer called Globalfoundries. AMD is one of that company’s largest customers.
AMD’s share gains have been exaggerated as some investors were forced to buy the shares to cover short positions, Acree said. That and the recent stock slump has made the shares volatile, said Ambrish Srivastava, an analyst at BMO Capital Markets.
“When stocks get to those levels it doesn’t take that much to show you those moves,” he said. “Fundamentally, they have a tough road ahead. They still have to win credibility back.”
In October, AMD gave a forecast for fourth-quarter sales that fell short of analysts’ estimates and said it will cut 15 percent of its staff, citing weak demand across all product lines in a challenging economic environment.
The revenue projection put the company on course for its fourth consecutive quarterly sales decline. That led analysts such as Sanford C. Bernstein & Co.’s Stacy Rasgon to predict that, if the trend continues, cash reserves may fall short of what AMD says it requires.
Separately, AMD last week said it is in talks to sell its campus in Austin, Texas, to boost cash reserves.
The company seeks to raise $150 million to $200 million in a transaction that may close in the first quarter, said Drew Prairie, a spokesman. Once the chip-maker sells the site, which houses corporate offices, it will lease the space back over multiple years.
Mubadala currently holds about a 15 percent stake in AMD, with unexercised warrants for additional stock purchases bringing its total holdings to about 19 percent, Prairie said.