The proposed merger of Chartered Semiconductor Manufacturing and Globalfoundries will help the AMD manufacturing spinoff propel forward in its bid to become a foundry leader, according to analysts.
Earlier this week, Advanced Technology Investment Company (ATIC) and Chartered Semiconductor announced that they entered into a definitive agreement, in which ATIC would acquire Chartered for $1.75 billion. ATIC owns about two-thirds of Globalfoundries--the joint venture that the investment firm created with Advanced Micro Devices.
The deal is subject to Singapore's High Court and Chartered's shareholders, but according to market analyst iSuppli, chances are good the deal will go through.
In a statement, iSuppli said Chartered and Globalfoundries earned a combined revenue of $1.2 billion for the first half of 2009, which would propel it to No. 2 among pure-play foundry players. TSMC was the clear leader at $3.3 billion.
Globalfoundries revenue includes combined Chartered Semiconductor and Globalfoundries revenues for the first and second quarters of 2009.
(Credit: iSuppli)The deal addresses a number of "glaring weaknesses" Globalfoundries has in service and its ability to produce in bulk, which the company had not been able to correct up till now. In particular, with the addition of Chartered, Globalfoundries would have two operational 300mm facilities and five 200mm ones.
"This acquisition provides Globalfoundries the ability to produce both bulk and silicon on insulator (SOI) technology," Len Jelinek, iSuppli's director and chief analyst for semiconductor manufacturing, said in the statement. "Prior to this, Globalfoundries could only manufacture SOI. But even of larger significance is that prior to the acquisition, the company was stuck doing things the way their largest customer --AMD--wanted.
"Now, they pick up the infrastructure that Chartered had in place and that's a major boon for them," he added.
Jim McGregor, chief technology strategist at In-Stat, said in a research note the potential merger was a "huge step" for Globalfoundries. He pointed out that the deal would deliver the third of three critical factors defined by In-Stat as vital to the foundry's long-term success.
The first two--gaining a significant customer and breaking ground on new capacity--had already been achieved. The third, becoming a part of the Common Platform manufacturing alliance.
"Gaining Chartered gives the company formal entree to the Common Platform alliance, which it was already loosely linked to through its relationships with IBM," McGregor explained. "This does assume that the transaction doesn't nullify the alliance or any contractual obligations, but we do not believe that it will because it actually adds more value to the Common Platform as an alternative to TSMC, the world's foundry powerhouse."
McGregor added that the fact that Globalfoundries had accomplished all three of these tasks in less than a year--"far quicker than In-Stat had predicted"--was "impressive" and drives the company "into a critical position in the market".
iSuppli added that the old foundry landscape was under duress, and that changes are fast-happening. UMC (United Microelectronics Corp.) could regain its second spot, with the expected completion of its acquisition of Hejin later in the year.
UMC did not respond to ZDNet Asia's request for comments by press time.
Chartered: Date for shareholder meeting not fixed
The date for a meeting by Chartered Semiconductor shareholders to vote on the sale of the company to Abu Dhabi's ATIC has not yet been set, according to a Chartered spokesperson.
The company, however, is targeting for the shareholders to congregate in November, she said in an e-mail.
According to a joint statement issued Sep. 7, ATIC and Chartered said that pending board approvals, Globalfoundries CEO Doug Grose would serve as chief executive of the combined operations. Chia Song Hwee, CEO of Chartered, would assume the role of chief operating officer and spearhead the integration effort.
The companies have just initiated the "integration planning process", the U.S.-based spokesperson added. Chartered has around 6,000 employees worldwide, with the "vast majority" based in Singapore. It has one 300mm facility and five 200mm fabs in the island-state.
Vivian Yeo of ZDNet Asia reported from Singapore.
Globalfoundries has named former Cypress Semiconductor executive Jim Kupec to its top marketing position, as the newly established company begins to assemble its executive team.
Globalfoundries is the chip manufacturing company recently formed by a joint venture between Advanced Micro Devices and Advanced Technology Investment Company (ATIC).
Kupec spent 15 years with Cypress Semiconductor, rising through a variety of engineering, operations, and management positions to the role of senior vice president, according to a statement from Globalfoundries.
After leaving Cypress, Kupec became president of United Microelectronics Co. (UMC) USA. Taiwan-based UMC is one of the largest contract chip manufacturers in the world and competes with Taiwan Semiconductor Manufacturing Co. Globalfoundries will compete with both of these companies for customers.
Most recently, Kupec served as chief operating officer of eSilicon, an ASIC (application-specific integrated circuit) design and manufacturing services company.
"The addition of Jim's extensive foundry experience, on both the supplier and customer side of the business, underscores our commitment to building a world-class global foundry services provider," said Doug Grose, CEO of Globalfoundries, in a statement.
In the wake of the latest kerfuffle between Advanced Micro Devices and Intel, AMD's chief counsel seized the moment to sound off on a primal fear at his company: Intel is bent on its destruction. Intel, of course, doesn't quite see it that way.
After Intel accused AMD on Monday of breaching a 2001 patent cross-license agreement with Intel, AMD's top lawyer had some choice words for its bigger rival.
In a phone interview Tuesday, AMD general counsel Harry Wolin refuted Intel's claim that the AMD manufacturing spin-off Globalfoundries is not a subsidiary--and thus cannot legally use Intel intellectual property--and talked more broadly about Intel's tactics.
Intel's ultimate goal, Wolin believes, is to crush rivals into oblivion. "In their perfect world, we wouldn't exist. If they had to deal with the government every now and then, that's fine, and they're still extracting monopoly profits from the industry," he said.
Wolin doesn't buy into the oft-repeated theory that Intel needs AMD to keep the industry honest and to keep the U.S. government at bay. "I don't agree with the premise that they have to have us and they think they have to have us. I think they would absolutely like us dead," Wolin said.
The Dickensian depiction of AMD as the impoverished, distressed victim of Intel's bullying and manipulation is inaccurate and, more importantly, misses the relevant point, according to Intel spokesman Chuck Mulloy. "It's nice of them to try to speak for us. AMD has been a competitor for almost 40 years in one form or another. This is not about AMD going away," he said. "This is about our rights and AMD's rights under the patent cross-license agreement."
Ashok Kumar, an analyst at investment bank Collins Stewart, said the premise of a remorselessly predatory Intel set on killing off its rivals is attention-getting but not that realistic.
"Could Intel put them out of business? Probably. But is it a likely outcome? I don't think so," he said. "Because they'll get a lot of significant push back from the OEMs (PC makers). The OEMs will essentially be making a beeline to Washington, D.C."
Intel contends this is a very localized dispute about whether Globalfoundries is a subsidiary or not, and not a manufactured issue "to distract the world from the global antitrust scrutiny (Intel) faces," as AMD said in a statement Monday. "AMD cannot unilaterally extend Intel's licensing rights to a third party without Intel's consent," said Bruce Sewell, senior vice president and general counsel for Intel, in a statement on Monday. Intel maintains the issue is that Globalfoundries is 34.2 percent owned by AMD and 65.8 percent-plus owned by Advanced Technology Investment Co., an investment company. So, in effect, Globalfoundries is not an AMD subsidiary.
Wrong, AMD says. It is not about ownership. AMD has met the conditions that qualify it as a subsidiary. "It requires that AMD originally contributed at least 50 percent of the assets. If you look at the fact that we've thrown in the German factories, we've thrown in the people, we've thrown in the technology, we've thrown in the intellectual property. I don't think there's any credible argument that says we haven't thrown in more than 50 percent of this. It says nothing about owning. It says you have to originally contribute 50 percent of the assets," Wolin said.
And what happens from here?
"Let's say the parties end up in a lawsuit at the end of 60 days," Wolin said. (Intel says it will terminate AMD's rights and licenses under the cross license in 60 days if the alleged breach has not been corrected.) "Well, you know, that lawsuit doesn't come to court for years and wouldn't come to court until well after the antitrust suit would come to court, which is currently scheduled for February of next year," according to Wolin.
Intel says the next step is mediation, where Globalfoundries is brought to the table. If this doesn't resolve the issue, then they would both be off to the races and the lawsuits would begin.
Advanced Micro Devices has appointed a new chairman to replace former CEO and Chairman Hector Ruiz, as it closes the deal to spin off its manufacturing operations.
AMD on Monday announced that Bruce Claflin has been appointed chairman of its board of directors. Claflin replaces Ruiz, who retired from AMD's board. Ruiz is now chairman of the board of The Foundry Company--the chip manufacturing concern that was spun off officially on Monday.
Claflin--who has been a member of AMD's board of directors since August 2003--has held senior positions with IBM and Digital Equipment and most recently was CEO and a member of the board of directors of 3Com. The AMD board also appointed Waleed Al Mokarrab to the board. Al Mokarrab is chief operating officer of Mubadala Development Company, the Abu Dhabi-based firm that is a major investor in The Foundry Company.
Dirk Meyer remains president and CEO of AMD.
AMD also announced on Monday that it has closed the deal to spin off its manufacturing operations to Advanced Technology Investment Company (ATIC) and Mubadala. AMD is billing the foundry as "the world's only U.S.-headquartered semiconductor foundry." Foundry companies, such as Taiwan Semiconductor Manufacturing Co., contract with outside chip design houses to build chips. The AMD spinoff will not only build chips for AMD but also seek business from outside customers.
Upon closing the deal, AMD receives $700 million from ATIC for a portion of its ownership interests in The Foundry Company. The Foundry Company assumes responsibility for the repayment of approximately $1.1 billion of associated AMD debt and Mubadala pays AMD approximately $125 million for 58 million newly issued AMD shares and warrants for 35 million additional shares, AMD said in a statement.
The deal will improve AMD's cash position by approximately $825 million, excluding its consolidation of the operations of The Foundry Company--which has a total "enterprise" value of approximately $4.3 billion. The company is owned 34.2 percent by AMD and 65.8 percent by ATIC.
Advanced Micro Devices' manufacturing spinoff got an all-clear from the U.S. government on Tuesday.
The Committee on Foreign Investment in the United States (CFIUS), part of the U.S. Treasury Department, gave the green light to AMD and the Advanced Technology Investment Company (ATIC) to create The Foundry Company, the manufacturing operations that AMD spun off back in October.
CFIUS has also determined that "the proposed additional investment in AMD by Mubadala is not a covered transaction subject to CFIUS review," according to AMD.
ATIC will own 65.8 percent of The Foundry Company and AMD 34.2 percent, according to a revised statement from AMD in December.
ATIC is a technology investment company wholly owned by the Government of Abu Dhabi. The Foundry Company will be a U.S.-headquartered chip manufacturing company with manufacturing facilities in Dresden, Germany. Future plans call for manufacturing facilities in Saratoga County, New York.
Advanced Micro Devices said Monday that it will incur $70 million in restructuring costs in the fourth quarter, according to a filing with the Securities and Exchange Commission.
The filing also cited fourth-quarter layoffs of 600 employees. An AMD spokesperson said that approximately 500 layoffs were announced in November, but that the company "ended up closer to 600."
The restructuring dollar figure is new, AMD said. The company now estimates that the "restructuring expense that it will record in the fourth quarter of fiscal 2008 will be approximately $70 million, based on the restructuring plan approved by the Company on December 19, 2008."
Of the $70 million, about $34 million is related to severance and employee benefits, $13 million is related to contract or program termination costs, approximately $17 million is connected to asset impairments, and about $6 million is related to exit costs at facilities.
Previously, AMD had reported in a Form 10-Q filing that it expected to cut approximately 500 employees and take a charge to operations in the fourth quarter of fiscal 2008 of approximately $50 million.
Future cost reductions are also planned. "Further cost reduction actions will result in additional charges in the first half of fiscal 2009, which the company cannot estimate at this time," according to Monday's Form 8K filing.
AMD also said that on December 19 it determined that it would incur a material charge for impairment of assets during the fiscal quarter ended December 27 related to the 2006 acquisition of ATI Technologies. "The Company concluded that the current carrying value of its goodwill...was impaired." AMD added: "This conclusion was reached based on the results of an updated long-term financial outlook for the businesses of the former ATI Technologies Inc. in light of the current market conditions and economic outlook" and "due to the deterioration in the price of the Company's common stock and the resulting reduced market capitalization."
AMD expects that the impairment charge "will be material, but, as of the time of this filing...is unable to estimate the amount or range of amounts of the impairment charge. The Company will disclose such an estimate or range of estimates in a filing with the SEC promptly and in any event within four business days of determining such an estimate or range of estimates," according to the Form 8K.
The Sunnyvale, Calif.-based chipmaker split in two earlier this year in order to defray the burdensome costs of its manufacturing operations. The manufacturing operations received a massive investment from Mubadala Development Co. and is now run as a separate concern called The Foundry Company.
The price of its stock has sunk from about $6 in June of this year to a little more than $2.
Advanced Micro Devices talked more about options for reducing its participation in a new manufacturing venture during its third-quarter earnings call on Thursday. The chipmaker also offered more details on conversion to 45-nanometer processors.
AMD 45-nanometer die
(Credit: AMD)Earlier this month, AMD announced that it was splitting into two companies: one for designing chips (AMD), the other for manufacturing them (The Foundry Company). The latter company will be owned approximately 56 percent by Advanced Technology Investment Co. (ATIC) and 44 percent by AMD.
During the conference call, AMD Chief Financial Officer Bob Rivet responded to a question from an analyst about an "exit strategy" for the foundry (manufacturing) side of the business by saying that AMD will "turn in more shares and ownership of the company" if necessary.
As Rivet put it, the foundry deal provides that "when a capital call is required for the foundry business, it allows us to either pay our fair share of that capital call or turn in more shares and ownership of the company...We'll make that determination at each point in time...There's a natural way to get out of it if we want to."
All of this--whether accounting is done on a consolidated or nonconsolidated basis--can get a little confusing for nonaccountants (and AMD even volunteered that it's "confusing") but Rivet put it this way. "Think of it this way: The Foundry Company piece of the bucket will have profits and losses...but they're all cashless. The cash generating machine of AMD is the AMD design product (company)."
Both Rivet and CEO Dirk Meyer also discussed AMD's conversion to 45-nanometer chips. "We'll be fully converted in first half of next year," said Meyer. Rivet added that it will be a "very fast ramp" to 45 nanometer chips. AMD is currently shipping processors based on 65-nanometer technology. Smaller geometries typically result in faster processors that use less power.
Speaking about AMD's 45-nanometer Shanghai server processor, Meyer said, "You'll see OEM (server) systems in the market this quarter," and added that AMD is "shipping the desktop variant this quarter and you'll see OEM systems in the market early next quarter."
Responding to a question about AMD's Netbook chip strategy and its response to Intel's Atom processor, Meyer said: "Clearly the Netbook is a new form factor and new market opportunity and one we're not participating in right now, today."
He said more details will come at an upcoming analyst meeting. "We do have strategies together with our OEMs for pushing solutions both down into smaller form factors and lower notebook price points."
Advanced Micro Devices reported a much smaller loss for the third quarter and better-than-expected revenue.
The Sunnyvale, Calif.-based chipmaker reported third-quarter 2008 revenue of $1.776 billion, including process technology license revenue of $191 million.
Revenue increased 32 percent compared to the second quarter of 2008 and 14 percent compared to the third quarter of 2007.
A positive surprise is the net loss, which was significantly smaller than expected. The company reported a net loss of $67 million, or 11 cents per share. Analysts polled by Thomson Reuters had expected a third-quarter loss of 40 cents per share on $1.48 billion in revenue. The company also reached operating profitability in the quarter.
Analysts were impressed by the numbers. "Even in a normal environment this would be a pretty remarkable achievement. In today's environment, it's extraordinary," said Ashok Kumar, an analyst at investment bank Collins Stewart.
"Improved execution across all of our businesses," Robert J. Rivet, AMD's chief financial officer, said in a statement, "was punctuated by a refresh of our graphics product line-up, driving 55 percent sequential revenue growth and market share gains. In addition, customer adoption of our quad-core microprocessors was strong, with unit shipments increasing 46 percent sequentially."
In the second quarter of 2008, AMD had revenue from continuing operations of $1.349 billion and a net loss of $1.189 billion. In the third quarter of 2007, AMD had revenue from continuing operations of $1.558 billion and a net loss of $396 million.
Third-quarter 2008 gross margin was 51 percent, or 45 percent excluding process technology license revenue. This compares favorably to both the second-quarter 2008 non-GAAP gross margin of 37 percent, and the third-quarter 2007 gross margin of 41 percent.
"We achieved a significant milestone with the recent announcement of our Asset Smart strategy, which will transform both AMD and the industry," Dirk Meyer, AMD's president and CEO, said in a statement.
Earlier this month, AMD announced that it was splitting into two companies: one for designing chips (AMD), the other for manufacturing them (The Foundry Company). The capital-intensive business of manufacturing chips had been weighing on AMD as it reeled under a $5 billion debt load, partially due to its purchase of ATI Technologies in 2006.
The investment is expected to allow AMD to remain directly involved in chip manufacturing--crucial for competing with Intel.
AMD said it has secured $5.7 billion of "confirmed, pledged investment," with some of the money earmarked for a future manufacturing facility in Malta, N.Y. It will own part of the new manufacturing entity, and Advanced Technology Investment Co. (ATIC) will own the rest.
In addition, ATIC will commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden, Germany, and construction the Malta, N.Y., facility.
One of the largest investors, Mubadala Development, now owns 19.3 percent of AMD.
Update on October 9 at 9:00 a.m. with additional comments from Intel and AMD.
Advanced Micro Device's new manufacturing venture may come with some old baggage.
After AMD announced on Tuesday that it would spin off its manufacturing assets to a new company partially owned by the Abu Dhabi government, Intel was quick to warn AMD about patent and cross-licensing concerns.
AMD will own part of the new manufacturing entity, for the time being to be called The Foundry Company, while Advanced Technology Investment Co. (ATIC) will own the rest (55.6 percent) and have equal voting rights with AMD in The Foundry Company. The total investment is expected to come to approximately $8 billion.
Intel-AMD disputes are certainly not new. AMD sued Intel in 2005 alleging antitrust violations. But this time Intel has AMD in its sights.
At the moment, Intel is simply expressing concern about the deal, per the Patent Cross License Agreement between the two companies. (The two chipmakers have cross-licensing agreements that go back to 1976.)
The Agreement, which was signed in 2001 and expires in 2010, has restrictions related to the transfer of licenses and patents.
"We don't know enough yet. We have a lot of questions about how this deal is structured," said Intel spokesman Chuck Mulloy.
"According to the public statements they made in their press releases, they (ATIC) also have 50 percent voting rights. So we need to understand a lot more about it. We just have to do due diligence. Make sure that our IP (intellectual property) rights are protected."
AMD, for its part, believes the transaction is structured in a way that doesn't violate any agreements. "We are completely confident the structure of this transaction takes into account our cross-license agreements. Rest assured, we plan to continue respecting Intel's intellectual property rights, just as we expect them to respect ours," said AMD spokesman Drew Prairie.
Advanced Micro Devices appears to have found an alternative to going fabless.
The dramatic announcement by AMD Tuesday, which focuses on a new entity known for now as The Foundry Company, shows that there is another way to restructure that doesn't entail completely jettisoning manufacturing operations--referred to in the semiconductor industry as fabs or fabrication facilities.
"Real men have fabs." This quote attributed to former AMD CEO and Chairman Jerry Sanders has some import here. Though fabless concerns, such as Nvidia, have been held up as lean, mean chip-supplying machines that don't have the burden of funding costly manufacturing facilities, the downside is often ignored by Wall Street.
Going completely fabless separates the company from key process technologies that are needed to stay ahead. That's especially true in AMD's case, where the sole processor rival is chip behemoth Intel, which derives much of its strength by moving quickly from one chip manufacturing process to another. Going to a new manufacturing process typically results in faster, more power-efficient processors.
This artist's rendering shows what AMD expects its New York facility to look like when it opens for business about three to four years from now.
(Credit: AMD)Look no further than the state AMD finds itself in today. It is a generation behind Intel, which has been shipping chips based on the 45-nanometer process for almost year. AMD is currently struggling to get out its first generation of 45nm processors.
The newly created Foundry Company was described by AMD Chief Executive Dirk Meyer on Tuesday as a "brand-new and leading-edge semiconductor manufacturing company." It will be run by Doug Grose, who will relinquish his current role as AMD's senior vice president of manufacturing operations to become CEO of The Foundry Company.
Two things will happen as a result of the backing by the Abu Dhabi-based investors. First, AMD, through the joint company Advanced Technology Investment Co. (ATIC), will expand its current manufacturing facilities in Dresden, Germany, and transform this into a foundry company that also builds chips for other companies.
As part of this expansion, Dresden will bring in IBM's silicon-on-insulator (SOI) and so-called "bulk silicon" technologies. "We deepen and widen our relationship with IBM," AMD said Tuesday. "So we'll be able to take bulk and SOI together to the 22-nanometer generation and beyond." (The next generation of chips will be made on a 32-nanometer process, followed by 22-nanometer in the 2012 time frame.)
AMD's Fab 36 in Dresden will focus on IBM's silicon-on-insulator (SOI) and so-called "bulk silicon" technologies.
(Credit: AMD)Second, AMD will move forward to build manufacturing facilities at the Luther Forest Technology Campus, near the town of Malta, N.Y. "At the earliest opportunity we will break ground on upstate New York and begin work on what we believe will be the most sophisticated manufacturing facility in the United States," AMD said.
The intention is to "bring that fab online in the late 2011, 2012 time frame," AMD said. "And further cementing that upstate New York corridor as one of the leading (areas) in the world for nanotechnology." The planned facility will provide 1,400 jobs for the region, according to AMD.
AMD may also expand beyond Dresden and New York. "Once we complete the Dresden expansion and build out upstate New York--and if commercially justified--we will consider the creation of research and manufacturing facilities in Abu Dhabi," said Grose.
Hector Ruiz--the current AMD chairman--will relinquish his role as AMD's executive chairman to become chairman of The Foundry Company.
