AMD rejigs GlobalFoundries wafer supply agreement

AMD has amended its chip supply agreement with GlobalFoundries to encourage the manufacturer to increase the consistency of its 32nm silicon wafer production.

Under the amended Wafer Supply Agreement (WSA), announced on Sunday, AMD will only pay GlobalFoundries if it delivers 32nm 'good die', a term that refers to the silicon wafer being a reliable, problem-free product. In return, AMD has committed to purchase an undisclosed number of 45nm and 32nm wafers in 2011, and it estimates it will pay GlobalFoundries between $1.1bn (£680m) and $1.5bn in 2011 and $1.5bn and $1.9bn in 2012, as part of the changed WSA.

"The primary purpose of the amendment was to revise the pricing methodology applicable to wafers delivered in 2011 for AMD's microprocessor and accelerated processing unit (APU) products," AMD wrote in a statement on Sunday. "The amendment also modified AMD's existing commitments regarding future increases in production of certain graphics processing unit (GPU) and chipset products at GlobalFoundries."

AMD will also pay an undisclosed additional quarterly amount to GlobalFoundries during 2012 of no more than $400m, if GlobalFoundries meets the specified conditions related to continued availability of 32nm capacity.

Good supply of silicon

Previously, GlobalFoundries priced wafers for AMD in a cost-plus manner for both processors and APUs. This means GlobalFoundries charged AMD for the cost of producing the wafers, whether good die or not, plus an undisclosed extra fee. In 2012 the amended WSA will revert, and AMD will go back to paying GlobalFoundries for wafers on a cost-plus basis.

It is important that AMD has a good supply of 32nm silicon, as many of its top-end processors for 2011 rely on the manufacturing process. All of AMD's second generation of Fusion APUs — the 'Llano' family — are manufactured under the 32nm technology.

As of Monday, Llano processors are being shipped to manufacturers for testing and product integration, according to interim chief executive Thomas Seifert, who spoke on a conference call with analysts. In AMD's financial statement for 2010, Seifert pointed to Fusion APUs for the company's future growth prospects.

Catching up

AMD is attempting to close the nanometre node gap with Intel, which currently puts AMD at a lag of around seven or eight quarters. "Intel has transitioned to 32nm process technology and is transitioning to 28nm process technology before us," AMD noted in a Securities and Exchange Commission (SEC) statement from 18 February. "Using a more advanced process technology can contribute to lower product manufacturing costs and improve a product's performance and power efficiency."

Using a more advanced process technology can contribute to lower product manufacturing costs and improve a product's performance and power efficiency.

– AMD

AMD hopes the revised WSA will help it move to a lag of just six quarters. It plans to ramp production at GlobalFoundries to 28nm in 2012, with 20nm in the years after that. GlobalFoundries is working through kinks in 32nm production, Seifert said on Monday, but does not have any technological barriers to vault. "We are now in manufacturing mode and yield improvement; ramping up the yield curve is a manufacturing topic, not a technology topic," he said. 

AMD's dedicated graphical processing units are made by TSMC rather than GlobalFoundries, but the revised supply agreement is a pathway for AMD to get GlobalFoundries up to a sufficient manufacturing standard to start fabbing GPUs in its plants beyond 2012, Seifert said.  

Delays in transitioning

AMD has had trouble with 32nm silicon in the past, delaying the launch of its 32nm Llano APUs. The problems came to a head in mid-2010, and were singled out in its second-quarter earnings call.

Then-chief executive Dirk Meyer said that, due to "a slower than anticipated progress of [the] 32nm yield curve", AMD would swap the release schedules for its Ontario and Llano chips, bringing out the 40nm Ontario first, and the 32nm Llano in the second half of 2011.

At around the time of this earnings call, AMD began hammering out the revised WSA, Seifert said. In its Securities and Exchange Commission report on 18 February, AMD identified its reliance on GlobalFoundries for 32nm as a potential pitfall.

"[GlobalFoundries] has experienced delays in transitioning to 32nm process technology, which has delayed the introduction of certain APU products. If [the company] continues to experience delays or difficulties transitioning to 32nm or other advanced process technologies, our business would be materially adversely affected," AMD wrote in the filing.

"Any decrease in manufacturing yields could result in an increase in per-unit costs, which would adversely impact our gross margin and/or force us to allocate our reduced product supply among our customers, which could harm our relationships with our customers and reputation and materially adversely affect our business," it added.