Petrodollars flowing to Silicon Valley
The United Arab Emirates shops for computer chips
By blackhedd Posted in Congress | Dollar | Economy | oil — Comments (13) / Email this page » / Leave a comment »
Mubadaba Development Co, an investment firm based in Abu Dhabi, just purchased about 8% of Advanced Micro Devices. AMD is based in Sunnyvale, California, and is Intel's competitor in the computer chip business. The transaction is structured as a simple minority investment with no board representation, so it won't trigger a government review.
The first point is political. Let's see if Congress has enough chutzpah left over from trashing our successes in Iraq to try mucking this deal up.
The more-important point is financial. This is the third major news story to come out of the Emirates this week. I wrote about their purchase of Airbus products here, and mentioned their announced intent to consider dropping their currency's peg to the US dollar.
Emirates is emerging as one of the most sophisticated states to come out of the modern era of the oil industry. No longer dominated by huge private corporations, oil is now controlled mostly by governments. Which in effect means, by a tiny handful of exceptionally powerful individuals and their families.
Hugo Chavez gets all the headlines, perhaps because he's so intent on turning his country's oil wealth into poverty and, eventually, bloody social disorder.
The oil-igarchs in a handful of other countries, however, are in the process of building up thousand-year fortunes, that will shape the world's constellation of political power long after the last drop of oil has been converted into global warming.
Disclosure: I personally and beneficially own AMD stock.
« Bank of America's Bailout Bill — Comments (13) | Attn. Congress: De-fund NOW!! — Comments (9) »
Petrodollars flowing to Silicon Valley 13 Comments (0 topical, 13 editorial, 0 hidden) Post a comment »
But I didn't think it was commentworthy because that's how PIPEs are usually done. You have very undesirable tax consequences otherwise.
Did you notice, however, that AMD paid a roughly 25 basis-point "management fee" to the investors? That's awfully big for a brokerage commission. I wish I knew what that was all about. Could have been the investment banking fee paid to Merrill and Lehman Brothers, but I still think it's big.
Yep, that's typical. I just thought it was a good teaching-moment for the politically-oriented but less-financially-sophisticated types around here. :-)
That does seem like a big fee for the Wall Street boys, but who knows what's really going on. If I were a rich oil sheik looking to diversify into technology, I can't really see how acquiring a small printing-press stake in AMD (the sick man of Silicon Valley) would advance the agenda. It makes you wonder if this is some sort of next-gen private equity play (or the start thereof) now that the recent private equity binge has tapered off.
There are persistent rumors that AMD is planning to sell off its 300mm Dresden (DE) fab to TSMC - at least that makes sense. But what's going on with this news today escapes me....
I think you're absolutely right. The enormous pools of petrodollars are going to be the new drivers for asset acquisition around the world. It's not really credible to diversify $2 trillion in sovereign wealth out of the US dollar, so the logical thing to do is buy assets that ought to do well in spite of dollar inflation.
One assumes (well, hopes) that the sheiks will be disciplined about this process, unlike the Japanese in the late Eighties.
Oh, yeah, that. People were actually anxious to take Japanese languages classes back then.
Well, it would be great to see some of the petrodollars go into NEW risk capital funds with new management. Those chowderheads on Sand Hill Road have thoroughly beclowned themselves in recent years and that field is WIDE open to some aggressive competition.
...although I thought your focus was on private equity :-)
From where I sit, all the players on the business-finance chain seem to have moved up a zero from where they were about ten years ago.
The Sand Hill Road guys don't really do classic venture anymore because it doesn't put enough money to work and they don't have enough qualified investment pros to go around. So they've moved up to the deals that private-equity used to do. And of course some of them, like Doerr and Vinod, have gotten hot and heavy into green-tech.
If I were running the petrodollars, I would be very hesitant to expose them to high-risk ventures, for two reasons. First, they just have too damn much money. You can't properly diversify risk in a portfolio full of small investments, there's not enough hours in the day.
And second, the deep, basic conservatism of the Arab principals speaks in favor of investments in marquee assets rather than in venture.
I'm more hesitant than you are to label the premier Sand Hill Road VCs as chowderheads. They most definitely have a lot of competition at the low end of the VC scale (even Silicon Alley is making a feeble attempt at a comeback these days), but I don't think they see that space as their sweet spot anymore.
Ha. I probably have to try to deal with them more than you do. :-)
There's been a big shift to all-finance people - hardly any people with any significant technical chops. The problem there is that they read all sorts of "marketing studies" babble (that market-babble outfits put out) as gospel - when anyone with any technical experience would be able to tell them that too many of the marketing fantasies depend on the violation of the laws of physics.
Best thing a lot of those guys could do would be to save the $$ they waste on that high-end toilet paper and spend an afternoon a week wandering around in Staples....
I've been dealing with those guys for quite a while myself ;-). I still have to, which is why I hesitate to diss them. It would be fun to sit down over a single-malt with you and compare war stories.
I think some of the biggest of the classic names (and I think in terms of specific guys, not particular firms) have slowed down somewhat recently. (Needless to say, I'm not naming any of them!) Part of that is the effects of success that I mentioned in my previous comment.
In terms of technology, though, Sand Hill Road still has that one thing they do best, which is lay out a market map of the near future with tightly-defined boundaries between the boxes, and they go out and fund a small number of pure plays in each one. The best Silicon Valley VCs are extremely disciplined guys.
Ha ha.
I'm in the wireless space and they've made a complete mess of that by reading airy "marketing studies" and stubbornly knowing squat about the technology details - mainly about why all the hyped stuff just won't get you there.
As John Dvorak said recently, "You'd think that with all these wireless fiascoes marching in lockstep into the toilet...."
And they also have the high-energy/short-attention-span problem of being trendy rather than being sane. At one point Sand Hill Road had funded **sixty** network processor (remember those?) start-ups. There was no way in Hades that the marketplace could accommodate even a tenth of those. Today only three survive.
And ultra-wideband was a wireless technology that obviously was a joke (or a prank that got out of the lab) but they all believed the marketing hype and spent all their time talking to each other - rather than to anyone who knew anything. The result was a similar number of start-ups for a technology that was hyped 3 - 4 years ago as unit shipments in the hundreds of millions per year by now.... that has shipped precisely NOTHING. Something probably near $1B has been flushed down the drain because of this b*ttheadness.
This is totally nuts....
Yeah, my war stories are probably better than yours. You're buying....
;-)
I admit you're right about one thing, they do chase fads. Someone (a serial entrepreneur) once told me that Valley VCs get into the game because they're addicted to risk. I've found it's usually the exact opposite.
As with any other non-trivial game, though, the really top people are well worth getting to know and work with. I say that from experience.
Specifically in regard to wireless: I (along with everyone else) saw that huge wave of overfunding get started maybe four years ago. I looked at the space and said to myself, I don't understand the first thing about consumer wireless. I still don't.
Of course you know this, but it's worth pointing out for others that VC doesn't contemplate winning on all their investments. A VC is doing well if one deal in ten succeeds. They manage risk by ruthlessly shutting down their failures (and even their near-misses) before they burn down too much capital.
And their limiteds are putting their money in for a reason. Your point about ultrawideband is well taken of course, but no one with a brain was willing to fund Jeff Bezos in the early days either. A large tax-free investor like a pension fund or an endowment faces more risk if they don't invest with the top VCs than if they do.
The "reply" is getting too narrow and probably no one else is following this but us at this point. Since I assume you'll see this, I'll ping you via the contact thingee and we can see if it's worth continuing there.
...Gorgeous George Galloway, Member of Parliament, and Saddam Hussein sycophant, this should give this nation pause to think. MP Galloway was known to have, at times, carried on in the same manner as the unfortunate lady who accidently strangled herself at the Sky Harbor Airport in Phoenix, when mention was made of invading Iraq in 2003. The angst displayed by Gorgeous George was based on a very fundamental reason. MP Galloway was suckling on the monies flowing from Saddam's Oil for Food spigot.
His behavior is eerily similar to the Democratic Party's behavior today.
Chris Dodd, candidate for President of the United States, well known friend of Hugo Chavez, Fidel Castro, and almost every other Latin American Leftist, was also friend to an Orlando Letelier during the time Mr Dodd was actively engaged in sabotaging, then President Reagan's, attempts to take down Noriega's Sandanista Government in Central America. Mr Letelier had twin misfortunes befall him in DC, (1) he was the victim of a succesful assassination attempt and (2) his 'friends and family' calling list fell into the FBI's hands. On that list were the names and numbers of numerous East German KGB agents. You knew when the KGB needed a favor, Chris Dodd was listening.
In addition, the story of the man who wanted to be Benedict Arnold in Chief, John Kerry is familiar to all. Negotiating, as a private individual, with an enemy that is locked in mortal combat with the country whose uniform you are still entitled to wear, is Mr Kerry's stock in trade.
As the Clinton Administration rented out nights in the Lincoln Bedroom in exchange for monetary contributions to the DNC's coffers, no matter what the source, is the DNC offering it's services today to the highest bidder? Are the DNC's coffers awash in Arab dollars? When Ahmadinejad and Assad, or their agents, tell the Democrats to jump, is their answer simply "How High?" as a result of their monetery influence? Is the DNC essentially an agent of a foreign power?
Aside from Joe Lieberman, there's good reason to suspect just that.
Yes, that thought had occurred to me, back when the [Bill] Clinton administration became a wholly owned subsidiary of the Communist Chinese. What I can't quite understand is why his wife, "the smartest woman in the world", isn't taking more pains to at least not appear to be continuing that practice. Maybe she just doesn't think it will matter to enough people. Who knows - she might be right.
'Morning, Blackie,
BTW, did you happen to notice this in the news story?
This is a familiar but almost-governmental trick - just have the corporate treasury print up some new shares. Free money!
All summer the rumor mill in the Valley was swirling almost daily with stories about AMD being bought out in a private-equity deal a la Freescale. Bummer that it never happened (and probably won't with private equity now winding down for awhile), and maybe this is the next best thing.
(Full disclosure: I still embarrassingly hold some AMD shares and had held onto them largely hoping for the above rumor to pan out!)