AMD Cuts Q3 Forecast Due to Chip Manufacturing Problems

Problems at Globalfoundries facilities have limited the supplies of 32nm "Llano" Fusion chips, forcing AMD to reduce financial forecasts for the third quarter.

Executives with Advanced Micro Devices are pointing to manufacturing problems with partner Globalfoundries as the key reason for lowering their third-quarter financial forecasts.

AMD on Sept. 28 announced that revenue for the quarter will come in 4 to 6 percent higher than the second quarter, a drop from the initially projected 10 percent increase. In addition, third-quarter gross margins will come in at 44 to 45 percent, down from the previous estimate of about 47 percent.

The problem is centered around issues with Globalfoundries' Dresden manufacturing plant in Germany that are limiting the supplies of 32-nanometer "Llano" chips, according to AMD. At the same time, complexities in the 45nm process also are limiting supplies of those chips. The complexities surround the use of tools that are used in both the 32nm and 45nm processes.

The lack of 32nm Llano Fusion accelerated processing units (APUs) means fewer products with higher average selling prices powered by the chip.

The problems are not limited to the Llano APUs, AMD said-shipments of the company's next-generation Opteron 6200 Series "Interlagos" occurred later in the third quarter than officials had expected. Interlagos, which offer up to 16 cores and also are made by the 32nm process, are built on the new "Bulldozer" architecture. AMD announced Sept. 7 the Interlagos chips were shipping.

Systems powered by Interlagos chips are due out later in the fourth quarter.

For AMD, the manufacturing problems are in stark contrast to what Intel is doing, according to Ross Seymore, managing director of U.S. semiconductor research for Deutsche Bank Securities.

"Even as AMD faces challenges at 32nm, its primary competitor is poised to start shipping 22nm-based MPUs, which will further pressure AMD's costs and product competitiveness," Seymore said in a research note Sept. 28.

AMD spun off its manufacturing business in 2009 to create-in conjunction with Advanced Technology Investment Co. of Abu Dhabi-Globalfoundries. AMD works with both Globalfoundries and Taiwan Semiconductor Manufacturing Co. to build AMD's processors. TSMC makes several Fusion APUs as well as graphics chips for AMD.

AMD is scheduled to announce third-quarter financial numbers Oct. 27.

The chip maker's Fusion processors-which feature high-level graphics integrated on the same piece of silicon as the CPU-have helped AMD bolster its standing in the worldwide processor market. Analysts at Mercury Research in July said the Fusion chips helped AMD grow its share of the chip market to 19.4 percent in the second quarter, up from 17.8 percent during the same period in 2010.

However, IHS iSuppli said Sept. 28 that Intel in the second quarter grew its market share to 81.8 percent, thanks to high corporate demand for PCs and strong sales of its "Sandy Bridge" chips, which like the Fusion APUs integrate the graphics technology with the CPU.