AMD ditches stake in Globalfoundries

Summary:AMD and Globalfoundries, the semiconductor fabrication operation that used to be part of the chip maker, revamped their partnership. AMD will no longer have an equity stake in Globalfoundries.

AMD and Globalfoundries, the semiconductor fabrication operation that used to be part of the chip maker, revamped their partnership. AMD will no longer have an equity stake in Globalfoundries.

The move is the latest by new CEO Rory Read to refocus AMD. Last week, AMD bought SeaMicro in an effort to enter the low-power cloud server market.

Under the new deal with AMD and Globalfoundries the chipmaker renegotiated wafer pricing. In 2012, AMD will buy wafers under a "take or pay" arrangement. The two partners worked out a deal for 2013 pricing. As a result, AMD won't have quarterly payment obligations.

Two years ago, AMD completed the spin-off of its manufacturing assets. That spin-off became Globalfoundries. At the time, AMD executives were tickled about the deal since it allowed the company to streamline and focus on design instead of manufacturing. AMD lacked the balance sheet to compete with Intel on capital intensive chip fabrication.

On a conference call, analysts were struggling to figure out what AMD is getting out of the revamped Globalfoundries deal other than having an exclusivity arrangement nixed.

Among the moving parts.

  • AMD's stake in Globalfoundries is transferred to Globalfoundries.
  • Globalfoundries waved an exclusive arrangement for AMD to manufacture 28nm chips at Globalfoundries.
  • AMD will pay Globalfoundries $425 million in chunks that run through the first quarter of 2013.
  • And AMD will take a charge of $703 million in the first quarter related to the cash payment and a non-cash charge.
  • On a conference call with analysts, AMD CFO Thomas Seifert said the chip maker paid Globalfoundries $904 million in 2011 and expects to pay $1.5 billion in 2012.

Seifert said:

You'll recall the purpose of the agreement is to define the terms by which AMD purchased this product manufactured by Global Foundries and an agreement that lasts until 2024. Under the original wafer supply agreement prior to 2011, we have been paying Global Foundries for wafers on the Cost Plus basis which included fixed costs on certain global foundry fabs. We were to return to the Cost Plus model as of January 2012. Originally anticipated to commence this year whereby AMD's wafer pricing would have been based on the fixed cost of only that capacity attributable to AMD's forecasted demand; however, to insure we continue working with Global Foundries to develop a pricing strategy that aligns to our business base and is mutually beneficial, we amended the agreement again in 2012.

Seifert wouldn't comment on minimal volume in the deal. He also wouldn't talk about whether AMD would use other semiconductor manufacturers. Clarification: AMD will use both Globalfoundries and TSMC to product 28nm chips, but the company didn't disclose the mix between the two manufacturing partners.

Topics: CXO, Hardware, IT Employment, Processors

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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