RealTime IT News

AMD Dumps Fabrication Plants

AMD and chips
Advanced Micro Devices (AMD) today finally unveiled its long-hinted "Asset Smart" strategy, and it was what everyone suspected it would be: a divestiture of its fabrication facilities.

AMD (NYSE: AMD) has been talking about the Asset Smart strategy for months, and when Hector Ruiz stepped down as CEO earlier this year, his new assignment was to see Asset Smart to fruition.

And now it has come to pass. With an investment from the Advanced Technology Investment Company (ATIC) of Abu Dhabi, AMD will spin off its massive Dresden, Germany fabrication facility, along with a planned foundry in upstate New York.

The resulting company has the temporary name of The Foundry Company (TFC) and will be a competitor to a number of firms, including Charter Semiconductor and Taiwan Semiconductor Manufacturing Company (TSMC), the largest of the independent chipmakers.

ATIC will invest $2.1 billion to purchase its stake in the new company, $1.4 billion of it going directly to TFC with the rest going to AMD. ATIC said it would commit additional equity funding over the next five years to TFC, from a minimum of $3.6 billion to up to $6 billion. The Foundry Company will assume approximately $1.2 billion of AMD's existing debt.

Also, Mubadala Development Company, the same group that sank $622 million into AMD last year, will increase its current investment in AMD to 19.3 percent on a fully diluted basis, with a $314 million investment.

Doug Grose, senior vice president of manufacturing operations at AMD, will become CEO of The Foundry Company, while Ruiz will step down as AMD's executive chairman and chairman of the board to become chairman of TFC.

"The creation of The Foundry Company represents a critical milestone in the evolution of the semiconductor industry," Grose said in a statement. "Companies are eager for choice in the supply of leading-edge manufacturing capacity, and our new venture is answering that call."

With AMD dumping its fabs, Intel (NASDAQ: INTC) and some of the Asian memory makers are the only chip companies with their own fabrication facilities. Everyone else outsources their semiconductor manufacturing.

John Spooner, senior analyst with Technology Business Research, said there is risk for AMD in this. "If this company does not stay up on the technology and transition as fast as AMD needs, AMD will fall behind," he told InternetNews.com. "But I have to believe they took the calculated risk and this road is the best road, because they will deliver new technology more quickly than they will be able to before."

TSMC, here we come

With a long-term goal of being a player in the semiconductor foundry space, TFC now has its sights set on TSMC and other established players. But it won't have the capacity to go head-to-head, notes Spooner. While TSMC has 11 fabs, AMD had only its Dresden facility and its planned New York facility, which is years away from completion.

But TFC will also have an advantage of being much more cutting-edge in its manufacturing capabilities than TSMC, putting it closer to Intel. TSMC is just reaching 55 nanometer die sizes, while AMD, thanks in part to a technology alliance with IBM, is at 45nm and heading to 32nm.

The Foundry Company will join IBM's joint development alliance, a group of leading semiconductor companies collaborating on next-generation silicon technologies, with the ultimate aim of reducing die sizes to 22nm.

This means mean TFC can go gunning for TSMC customers. TSMC has an impressive collection of customers, including Broadcom, Conexant, Marvell, NVIDIA, VIA and ATI, which AMD now owns.

"The Foundry Company will be aimed at the very high end of the market, because they will offer very cutting-edge technologies and will be able to come to market before TSMC," Spooner told InternetNews.com. "I'm not sure how much revenue they can generate going forward. It all depends on how quickly they bring on partners."

This will also let TFC invest more heavily in the fabs than AMD could have all by itself, and it can make more money by making chips for other firms than AMD. AMD's fabs have some problems, most notably they don't use 300 millimeter wafers yet, they still use 200 mm.

A larger wafer means more chips can be made at once, and thus reduce manufacturing costs. Spooner said that with the backing TFC now has, it can make that transition.

Start spreading the news...

Until now, AMD's New York expansion had been little more than hypothetical, as the company had never formally committed to plans to open the facility.

Today's announcement made the move official, however, with TFC unveiling plans for a state-of-the-art facility in Saratoga County, New York. It said the plant would create more than 1,400 direct jobs and generate an additional 5,000 jobs in the region once operational.

Dean McCarron, president of Mercury Research, noted that major fabs tend to be located near research or high-tech centers outside of Taiwan, and this is no exception. Saratoga County is near Albany and includes the city of Troy, home to Rensselaer Polytechnic Institute, a very well-respected university with a bias toward technology majors. The county itself is doing well, with only a 4.4 percent unemployment rate.

Until today, however, it had been unclear whether AMD would go through with its long-discussed opening of a second plant beyond Dresden, where it's now also planning to expand capacity.

"Up to this point, the betting was it wasn't going to happen, because AMD had its plate full without that fab and their existing fab was covering more than it needed," McCarron said.