Advantages, Threats to the Deal

By Scott Ferguson  |  Posted 2008-10-07 Print this article Print

While AMD will serve as The Foundry Company's first and primary customer for x86 processors, the new company has ambitions beyond serving a single customer.

In the future, Sonderman said he sees The Foundry Company as competing against some of the other large chip manufacturers in the worldwide market, including TSMC (Taiwan Semiconductor Manufacturing). Right now, TSMC manufactures all of AMD's ATI graphics chips, and Sonderman said The Foundry Company plans to compete against TSCM to capture that business in the future.

By spinning off its manufacturing facilities, AMD can now concentrate on processor design and marketing, while The Foundry Company can compete for new business on its own. It's an agreement that Roger Kay, an analyst with Endpoint Technologies Associates, said he believes is the smart play for competing against Intel and bringing the company back to financial security.

"AMD gets to lower its fixed costs, making it profitable at a lower level of revenue, and it can still participate in leading-edge technology development," Kay wrote in an Oct. 7 research note. "It gets out from under some of its debt and receives a cash infusion from a patient source. The bonus: It gets to participate in an entirely new business, a foundry that takes in knitting from other fabless semi companies. AMD sweated this deal for a long time."

Before any deal goes through, however, AMD and its Abu Dhabi partners are expected to face some scrutiny from CFIUS (Committee on Foreign Investment in the United States), a government interagency committee chaired by the Secretary of the Treasury. AMD's processors are used in many computers and servers used by the U.S. government, including the giant Roadrunner supercomputer that IBM built for the Los Alamos National Laboratory in New Mexico.

In the interview, Dessau said AMD and its Abu Dhabi partners are already preparing the paperwork for the CFIUS committee, although he expects the government will approve the joint venture partnership without problems. In addition, AMD is preparing paperwork on the deal for the European Commission, the regulatory arm of the European Union.


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