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Chips & Processors

AMD Sheds Stake in GlobalFoundries, Exits Fab Business

AMD Sheds Stake in GlobalFoundries, Exits Fab Business
March 6, 2012 12:08PM

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AMD's decision to exit GlobalFoundries is probably a financial one, said analyst Charles King. AMD has about $2 billion in cash. That pales in comparison with other major tech companies. With AMD's thinner cushion, King said, AMD may be looking for ways to cut unnecessary costs by shedding its stake in GlobalFoundries.

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AMD is no longer in the wafer manufacturing business. The chipmaker has renegotiated its wafer supply agreement with GlobalFoundries, selling its stake in the operation.

As part of the deal GlobalFoundries waived its exclusivity agreement for AMD to manufacture certain 28nm APU products there and AMD agreed to pay GlobalFoundries $425 million over the course of the next year. The move makes AMD fabless, and it comes at a time when IBM is becoming closer to GlobalFoundries.

"The amended wafer supply agreement demonstrates that AMD and GlobalFoundries remain committed as long-term strategic business partners," said Rory Read, CEO of AMD. "We made significant progress last year to strengthen our relationship, and we're pleased with GlobalFoundries' recent performance in meeting our delivery requirements across our product line."

GlobalFoundries' Growth

That's the story from AMD's side. From GlobalFoundries' perspective, the company is celebrating its long-term vision of becoming an independent foundry company. GlobalFoundries is now wholly owned by Advanced Technology Investment Co., which is owned by the government of Abu Dhabi.

"AMD's 32nm processor shipments increased by more than 80 percent from the third quarter to the fourth quarter and now represents a third of AMD's overall processor mix," said GlobalFoundries CEO Ajit Manocha. "In fact, GlobalFoundries exited 2011 as the only foundry to have shipped in the hundreds of thousands of 32nm High K Metal Gate wafers."

In January, GlobalFoundries announced plans for more than $3 billion in capital spending in 2012 to fund expansion of its facilities in Singapore, Germany and New York. The company announced that its newest 300mm manufacturing facility, Fab 8 in New York, started running the first silicon as part of a new customer agreement to develop leading-edge chips for IBM.

Constant Fab Investments

"When AMD hired Rory Read, their new CEO, back in November, it was with the implication that he was going to come in and completely reorganize the company up and down," said Charles King, principal analyst at Pund-IT. "The fact that he's acting boldly has been pretty evident since the first hires he made and his move to acquire SeaMicro last week."

As King sees it, AMD's decision to exit GlobalFoundries is probably a financial one. AMD has about $2 billion in cash. That pales in comparison with other major tech companies that are sitting on tens of billions in cash. With AMD's thinner cushion, King said, the chipmaker may be looking for ways to cut unnecessary costs.

"Companies that run their own fabs or have their own interest in dedicated fabs are becoming the exception rather than the rule. It's an expensive manufacturing process and it's changing so rapidly that a company can invest billions of dollars into a new fab today and have to significantly retool or replace those fabs just a few years down the road," King said.

"For a lot of companies, including AMD, it probably makes sense to exit that part of the business and work more with dedicated fab service providers as the need arises."

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