AMD Spins Off Processor Manufacturing Facilities to Better Compete with Intel

 
 
By Scott Ferguson  |  Posted 2008-10-07
 
 
 

AMD Spins Off Processor Manufacturing Facilities to Better Compete with Intel


Advanced Micro Devices is finally detailing its long-talked-about "asset smart" plan, which will allow the chip maker to spin off its manufacturing facilities into a new company while allowing AMD to reduce its financial debt and better compete against Intel.

The new manufacturing company, which will be temporarily called "The Foundry Company," will be a joint venture between AMD and the Advanced Technology Investment Company (ATIC), a technology investment company founded in 2008 and owned by the government of Abu Dhabi.

AMD released some specifics of the new agreement and how The Foundry Company will operate during an Oct. 7 press conference. The deal to create the new company will close sometime in the early part of 2009. While the new manufacturing company will be a joint venture, it will retain a strong AMD presence, with Doug Grose, AMD's current senior vice president of manufacturing operations, becoming the CEO of The Foundry Company and Hector Ruiz stepping into the role of chairman of the board of the new company.

Ruiz stepped down as CEO of AMD after the company announced its second-quarter financial results. He will leave AMD when the new company is formed in 2009.

During a call with reporters and analysts, AMD CEO Dirk Meyer said the creation of the new company will be viewed as one of the most significant events in the history of AMD, while allowing the company to better compete against Intel. Now that AMD will no longer have to support its own fabs, the company's engineers can concentrate exclusively on CPU and graphics design and marketing.

"With this transaction, AMD is ensured access to leading-edge manufacturing process technologies without the capital expense requirements that come from owning a world-class manufacturing operation," said Meyer. "We can now intensify our focus on serving our customers as the only company capable of delivering both world-class CPU and graphics designs for next-generation computing and digital media platforms."

Under the agreement, the new company will take ownership of AMD's two fabrication plants, or fabs, in Dresden, Germany, where AMD's line of x86 processors are manufactured. For its part, ATIC will invest $2.1 billion to purchase a stake in The Foundry Company. Of the $2.1 billion, ATIC will invest $1.4 billion directly in the new manufacturing company, with the remainder paid to AMD to purchase additional shares in The Foundry Company.

In addition to the cash investment, AMD will trim about 3,000 jobs from its payroll when those workers move over to The Foundry Company. Earlier this year, AMD announced that it would lay off about 10 percent of its work force.

The Foundry Company will then become the primary manufacturing facility for AMD. While this is a new company, AMD expects that its research and development relationship with IBM will remain the same. The new company will also become part of IBM's partnership to develop new types of processor technology.

Significant Step to Correct Financial Woes


 

For AMD, the move to spin off its fabs is being seen as a significant step to help the company correct what has turned into a dire financial situation. AMD has sustained seven straights losing financial quarters and has piled on debt after its $5.6 billion acquisition of ATI in 2007. With the forming of the new company, AMD will push $1.2 billion off its books, and that debt will be assumed by The Foundry Company.

In a research note, John Spooner, an analyst with Technology Business Research, wrote that he believes that by spinning off its manufacturing facilities, AMD will be able to concentrate of designing, engineering and marketing its processors and platforms for desktops, notebooks and servers.

"We believe that the chipmaker will become more competitive as it will be able to concentrate its resources on product design, allowing it to focus on delivering products that are consistently competitive with those of Intel," Spooner wrote. "A more competitive AMD product line will bring with it higher revenue and profitability for the chipmaker, reversing its recent string of unprofitable quarters."

During their conference call, executives from AMD and ATIC detailed a long-term plan, which will include additional capital injections into the new company. In addition to the initial investment, ATIC is planning to pour as much as $6 billion into The Foundry Company during the next five years, which will help expand the two fabs in Dresden, including one facility that will produce 300-millimeter wafers, and begin the construction of a new facility in upstate New York.

However, the rights and subsidies that New York state promised to AMD to build the new fab will now have to be transferred to The Foundry Company. The process to transfer those rights, according to company executives, will run in parallel to the establishment of The Foundry Company.

In addition, Mubadala Development, another investment company owned by Abu Dhabi, will invest an additional $340 million in AMD. The government-backed investment company, which earlier invested in AMD, will now own 19.3 percent of the chip company.

Editor's Note: This story was updated to include additoinal information about the "asset smart" plan.


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