With oil prices surging and U.S. stock prices slumping, chip maker Advanced Micro Devices Inc.'s sale of an 8.1 percent stake to the Abu Dhabi government's investment arm represents the latest plunge by a wealthy Middle Eastern nation into a troubled U.S. corporation.
It also raises fresh questions about the appropriateness of Middle Eastern firms owning large chunks of U.S. businesses that specialize in advanced technologies.
Sunnyvale-based AMD, the world's No. 2 microprocessor maker, needs the $622 million investment from the Mubadala Development Company to help lift the company out of a deep financial slump.
AMD has lost more than $1.6 billion so far this year, and has just $1.5 billion in cash on hand as it works to pay down $5.3 billion in debt. The financial woes have caused AMD's stock to fall more than 35 percent since the start of the year, a slide that has wiped out nearly $4 billion in shareholder wealth.
The infusion, announced Friday, is a necessary jolt for AMD is it hunts for money to fund its counteroffensive against Intel Corp., the world's largest chip maker, and amid a huge spike in investments in U.S. companies from Middle Eastern nations.
Middle Eastern investments in U.S. companies has increased more than fivefold in 2007, leaping from $4.5 billion on 32 deals last year to nearly $25 billion on 42 deals so far this year, according to data compiled by Thomson Financial.
The money invested in the past two years is more than the entire total invested from 1990 to 2005, according to the latest Thomson data. During that period, $24.8 billion in investments were made in 258 deals.
Oil-rich countries have been enriched further in recent months by a run-up in the price of a barrel of oil, which has been hovering in the $90 range while many U.S. stocks continue to suffer from the housing and lending morass that's led some banks to absorb billions of dollars in losses.
The biggest deal so far this year involving Middle Eastern firms was General Electric Co.'s $11.6 billion sale of its plastics division, completed in August, to petrochemicals manufacturer Saudi Basic Industries Corp., a public company based in Riyadh that is 70-pecent owned by the Saudi Arabian government.
Firms based in the United Arab Emirates, a federation of seven oil-rich states, have invested nearly $10 billion in real estate, financial, power generation and other types of companies in the United States.
Earlier this year, Mubadala bought a 7.5 percent stake in the management operations of private-equity firm Carlyle Group for $1.35 billion, and this week unveiled a partnership with military contractor Northrop Grumman Corp. to collaborate on aerospace and aviation technologies.
The deal with AMD makes the Abu Dhabi government-run investment fund AMD's third-largest shareholder, according to AMD's latest regulatory filings, a development that AMD vows will not trigger a review by the U.S. government because it's a minority investment and Mubadala will not get a board seat.
However, some experts doubt that claim, citing the sensitivity of AMD's technology, which besides being used widely in consumer personal computers and corporate servers is also used in Defense Department computers and other government machinery.
John Reynolds, an attorney at Wiley, Rein & Fielding in Washington, said the transaction could face scrutiny by Committee on Foreign Investment in the U.S., or CFIUS, a 12-member panel headed by the Treasury Department, because the U.S. government is very interested in acquisitions by government-run investment funds, known as sovereign wealth funds, such as Mubadala.
China, Saudi Arabia and other Middle Eastern and Asian countries have set up such funds, which control an estimated $2.5 trillion in assets.
In addition, if AMD has government contracts for classified work, interest from CFIUS and Congress "is apt to be considerable, even if the investment is non-controlling," Reynolds said.
Generally, passive investments of less than 10 percent of a company's shares do not trigger review by CFIUS. But that is not a hard-and-fast rule, Reynolds said, and an ownership stake below 10 percent is not automatically shielded from review.
AMD shares slid 6 cents to $12.64 in Friday trading.