In a bit of news that’s unfortunately not an April Fool’s joke, a US District Court has ruled that AMD must face claims from investors over potential securities fraud committed by the company.

At the heart of the matter is AMD’s Llano APU. Launched in 2011, in Q3 of 2012 AMD had to take an inventory write-down of $100 million on unsold Llano inventory, as the company had to further reduce prices on the chips in order to sell them in the face of competition from Intel along with the ramp-up of their own Trinity APUs. The writedown in this case did not directly cost the company $100M, but it essentially reduced the value of the company by that much to AMD’s shareholders, whose stock in turn suffered a hit in value.

What makes this writedown lawsuit material are the events that led up to it and how AMD handled it. The participating investors are accusing AMD of committing securities fraud over how they presented the state of Llano production. The suit claims that Llano production was not as strong as AMD was claiming – a consequence of supply issues with GlobalFoundries’ 32nm process – and as a result AMD artificially inflated the value of the company in 2011 and 2012, and in the process produced too many Llano chips once GlobalFoundries was finally able to catch up. This in turn led to AMD’s $100M writedown and overall decline in value of the company and its stock price (with AMD losing about ¾ of its peak value in 2012).

These types of lawsuits are not particularly uncommon, especially as institutional investors seek restitution for money they lost from the drop in stock price. That said, today’s ruling is only over whether the lawsuit can go to trial and not over the validity of the claims themselves, never mind what specifically the investors are asking for. So it is likely that the actual lawsuit will take quite a bit longer to resolve.

Source: Reuters (via SH SOTN)

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  • chizow - Thursday, April 2, 2015 - link

    This is just a case of incomplete reporting, from the actual transcripts and original stories on the lawsuits it goes like this:

    AMD and most of their executives of the time (including former CEO Read and CFO Seifert ) are on record in conf calls to shareholders saying that Llano *DEMAND* was impossible to meet due to overwhelming response from the channel/market. They did cite some production issues, but the key was that they misrepresented *DEMAND* of the Llano APU, leading investors to believe these things were flying off the shelves and as soon as production ramped, there would be a significant spike in AMD's revenues/profits. Indeed, there was press coverage of this that gave AMD shareholders and supports alike hope that they may have turned the corner and that the APU was a successful venture for AMD. Given they paid so dearly for ATI, that was the hope, anyways.

    However, once manufacturing/supply issues were sorted out, the reality was that there was very LITTLE DEMAND for the chip, leading to huge inventory surplus and ultimately, the write downs detailed in the article above. Llano chips were probably put into the same landfill as Atari's ET game because there was no demand for these chips and AMD quickly replaced it with Trinity shortly afterwards.
  • chizow - Thursday, April 2, 2015 - link

    Also I should add, I do believe this lawsuit was a major factor in the departures of both Seifert and Read from AMD. Just a huge black cloud hanging over company, and not something you want your current CEO/CFO dealing with while trying to run the company.
  • mdriftmeyer - Thursday, April 2, 2015 - link

    There is a window of opportunity when demand will be high. Manufacturing delays destroys that opportunity, not a CEO embellishing as if to drive the stock up.
  • chizow - Thursday, April 2, 2015 - link

    I guess the court proceedings will bear this out, the shareholders are saying the demand never existed, regardless of mfg delays. The fact none of these chips sold even after mfg issues were resolved and resulted in tons of excess inventory would bear this out, especially since their primary competitor, Intel, still did not have a competitive iGPU product.

    All of this points to the probability demand was overstated/misrepresented and never really existed.
  • melgross - Thursday, April 2, 2015 - link

    Reads just like what Blackberry has said for their phones the past three years. Same result too.
  • FlushedBubblyJock - Monday, April 6, 2015 - link

    Criminals have been running and ruining AMD as long as I have been watching.
    They have liars and frauds at the top, and that trickles down the whole schmear of them.

    When I watch nVidia employees in public they strike me as honest and confident and straight shooters, the exact opposite impression AMD persons deliver.

    People do notice these things, no matter how many times AMD swears it's holier than intel or nVidia, writes up a Gamer's Manifesto and brags about it, claims it would never stoop so low as it's competition, then rebrands like a true maniac, writes up proprietary crap, and breaks every rule it swore against twice as bad.
    That's what cons and criminals do.
  • toyotabedzrock - Thursday, April 2, 2015 - link

    I thought they where bound by contract to buy a certain number of chips from GF, so either way they had to buy them.
  • chizow - Thursday, April 2, 2015 - link

    They do have a horrible take or pay arrangement and that has certainly helped sandbag AMD's fortunes over the last few years, but if they said nothing and wrote down the inventory giving the reason: "We had to pay for them no matter what" then no one would complain. But the CEO misrepresented demand for these chips and that did drive up stock price and investor expectations. That's why they're no the hotseat, no other reasons.
  • toyotabedzrock - Thursday, April 2, 2015 - link

    The real fault here lies with wall street investors who think that companies selling off assets means there is value to extract without knowing anything about the business. They have a scewed idea of the world where they manage to make money from destruction of jobs and value.
  • anolesoul - Thursday, April 2, 2015 - link

    AMD IS LOSING THEIR CUSTOMER SUPPORT!!!! AND falling behind(WAY BEHIND...)---every single day!

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