AMD CEO Dirk Meyer: ‘Smart Men Have Foundries`

When Jerry Sander helped found Advanced Micro Devices, he used the now well-known maxim—“real men have fabs”—to describe how AMD planned to survive in the competitive global semiconductor market.

Now, as AMD prepares to shed it fabs, current CEO Dirk Meyer wants to use a new slogan.

“Jerry was a real smart guy but the industry has changed a lot since that time, so I think, ‘Smart men have foundries,’ is my new quote,” said Meyers during a Feb. 26 interview with eWEEK.

“Clearly it’s going to be a culture change for the company,” Meyer added. “There are a large number of capable manufacturing technologists and manufacturing people who will no longer be part of AMD, but the good news is they get to create a new company. Some people have asked me about the risk—as to imply there are big risks—but honestly I think we are on top of what we have to do both in terms of R&D and supply chain operations.”

In October, AMD announced that it would spin off its manufacturing facilities into a new company temporarily named “The Foundry Company.” After a delay, on Feb. 18, AMD shareholders approved the deal, which includes backing from the Advanced Technology Investment Company of Abu Dhabi, and the deal now is set to close March 2.

The new management of The Foundry Company, which includes former AMD CEO Hector Ruiz, is expected to announce the official name of the company soon.

By splitting the company in two, AMD’s management is hoping to refocus the company on marketing and chip design, while being able to reduce costs by moving the expensive manufacturing operations to another company. AMD is not the only company to take this approach. Texas Instruments has also spun off its fabs in order to better control costs.

By focusing on chip design and marketing, AMD is hoping to refocus the company as it competes against Intel in the x86 processor market.

While Meyer downplayed the risks involved with splitting AMD into two companies, the move is seen as a way to breathe much needed capital into AMD, which has suffered through two years of poor financial returns. In turn, this had led to a number of layoffs, pay cuts and other cost-cutting measures at AMD.

The spinoff deal means that AMD will gain about $800 million in capital, while removing $1.2 billion in debt from the company’s books.  Much of that debt comes from AMD’s $5.6 billion acquisition of graphics maker ATI. Since the deal closed two years ago, AMD has had to write off millions of dollars in losses and sell off some of ATI’s businesses.

AMD executives now believe that the company’s break-even point to return to profitability is $1.3 billion in operating expenses per quarter. However, Meyer declined to discuss when the company would reach that point and he also declined to discuss future financial forecasts due in part to the unstable global economy.

Meyer did note that the spinoff would not hamper AMD’s ability to convert the remainder of its processors to 45-nanometer technology. The first 45-nm Opteron server chips hit the market in November, and mainstream consumer and commercial desktop and notebook processors are expected later this year. He added that the company also plans to begin developing its own line of 32-nm chips.

“Right now, we’re engaged in optimizing preexisting designs and creating new designs for 32-nanometer, so we will be ramping out 32-nanometer production next year,” said Meyer. “We will collaborate to define the technology so that it meets the needs of the products, and AMD designers will create the products and they will be built at The Foundry Company.”   

Meyer also addressed some of the issues involving Intel’s complaints about the deal. Specifically, Intel spokespeople have questioned whether the new company is covered under previous agreements that allow AMD to use some of Intel’s intellectual property related to x86 processors.

“I think it’s pretty clear that they are trying to instill fear, uncertainty and doubt in the minds of our customers, shareholders and other stakeholders,” said Meyer.

When AMD does split in two, Meyer said he will not have any management role in the new company. However, AMD does stand to be The Foundry Company’s largest customer, which will continue to tie the two companies together. Meyer also suggested that AMD might switch some of its ATI graphics chip production to The Foundry Company as well.

As AMD moves forward, Meyer said that he hopes customers will now view AMD in a different light.

“What we are now is a product, marketing and design company that has an array of technologies, including CPUs that are optimized toward the application people will need in the future,” said Meyer.