AMD exits the DTV business, but will it approach profitability?

First a property of ATI that became AMD's through its acquisition of the graphics company, Broadcom announced today that it will be acquiring the Xilleon system-on-a-chip (SoC), as well as the rest of AMD's family of TV-related products, a move that will aid in finally pulling AMD out of debt.

The deal, first announced by Broadcom this morning, was first thought to be part of AMD's effort to move toward profitability by eliminating non-core businesses that will put it in a position for its "Asset Smart" project. It's a move that could aid in finally pulling AMD out of debt.

But as AMD spokesperson Jo Albers told BetaNews this afternoon, today's deal with Broadcom represents a separate transaction, and is not to be considered part of its latest re-org strategy.

"AMD is executing a strategy to transform the company, becoming leaner and more focused while seeking to create a business model to deliver sustainable profitability and leadership in x86 computing and graphics," said Albers. "The DTV business divestiture is a key step in AMD's transformation; however, this action is separate from our planned Asset Smart strategy."

In July, AMD announced several important changes would be taking place within the company, including moving then-President Dirk Meyer to the position of CEO, and also letting go of its digital television and handheld businesses. By establishing a deal with powerhouse Broadcom, the two companies will keep alive ATI's Xilleon and "Theater 300" lines of integrated DTV processors, as well as NXT receiver ICs. Broadcom will also acquire approximately 530 of AMD's Digital TV staff.

"The pending sale transaction is structured so that the DTV business will receive the necessary IP rights to operate the business as it was by AMD," Albers told BetaNews, "while ensuring that AMD will retain those IP rights needed to be successful in all of its remaining businesses, including graphics and computing businesses."

For the last seven quarters, AMD has been bleeding cash, and has given scant fact as to precisely what its latest effort at reorganizing assets will entail. Analysts believe the project will ultimately split AMD into two sectors: an "Asset Smart" manufacturing arm, and a fabless "Asset Light" chip development firm. The split might only be feasible, however, once AMD breaks even.

Earlier in the summer, Russian semiconductor manufacturer JSC Angstrem reportedly spent a "majority" of an €815 million loan on Complementary Metal Oxide Semiconductor (CMOS) equipment purchased from AMD. The sale of AMD's DTV property, coupled with the money acquired through the Angstrem sale, is expected by some to push the company back into profitability.

Meanwhile, Broadcom's portfolio of single chip digital and HDTV solutions is already substantial. Only one week ago, the company announced its 65 nm Digital-to-Analog SoC that will be used in Motorola, Pace Micro, and Thomson set-top-boxes. Thomson is supplier for the United States' largest cable provider, Comcast.

While that could conceivably leave an opening for a revenue channel for AMD, spokesperson Albers told us today that's not under consideration.

"We have not announced any plans to partner with Broadcom in the production of DTV hardware.  AMD is executing a strategy to transform the company.  The DTV business divestiture is a key step in AMD's transformation, helping us to hone our focus, as well as providing capital and lowering our operational costs."

The acquisition is expected to be completed on December 31, 2008, and cost Broadcom approximately $192.8 million in cash.