Business Tech

Advanced Micro Devices' former manufacturing operation, which was spun off recently by the chipmaker, launches on Wednesday as "Globalfoundries."

The new company is expected to make New York a hub of chip development and manufacturing.

Globalfoundries, which had been provisionally named The Foundry Company, is headed by Doug Grose, formerly senior vice president of manufacturing operations at AMD. Hector Ruiz, formerly AMD's chief executive, will become chairman of the board. It will be headquartered in Sunnyvale, Calif.

The breakup of AMD will present challenges from day one. AMD has become, essentially, a design house for chips.

"We will have to step back so we're respecting AMD as one customer of many," Grose said in a phone interview Tuesday. Grose said this won't be an entirely new experience for AMD, whose ATI graphics chip unit already has a longstanding foundry relationship with Taiwan Semiconductor Manufacturing Company (TSMC). "They already have that rigor and methodology in place," he said.

Although manufacturing will initially be centered in Dresden, Germany, the company plans to break ground on a $4.2 billion manufacturing facility at the Luther Forest Technology Campus in Saratoga County, N.Y., later this year. This is expected to cement existing R&D ties with IBM, which also has chip development and manufacturing bases in relative proximity to Saratoga County. Last year, AMD described this corridor in upstate New York as "one of the leading areas in the world for nanotechnology."

Grose said Globalfoundries has joined the "other side" of the IBM alliance, which is "industry-standard product." In short, though AMD previously had focused on high-performance PC processor-centric technologies, Globalfoundries will now focus on what is described as "bulk" chip technologies, "where the majority of the marketplace is," Grose said. "That's everything from consumer, handheld, wireless, up into graphics markets," he said.

Globalfoundries will target next-generation 32-nanometer and 28-nanometer manufacturing-process technologies as the "sweet spot for leading-edge customers," Grose said. The company's Dresden facilities are slated to begin 32-nanometer production next year. Output in New York is slated for 2012, focusing on 32-nanometer and smaller geometries, Gross said.

And whom, specifically, will Globalfoundries target as customers? "Look at the top 10 fabless companies, and you will get a pretty good cross-section of whom we have started to--or will talk to--very quickly," Grose said. Although Gross would not name names, top fabless companies include Qualcomm, Nvidia, SanDisk, and Broadcom.

AMD will own 34.2 percent of Globalfoundries, while the Advanced Technology Investment Co. will own the rest. ATIC is an investment company wholly owned by the government of Abu Dhabi, which is part of the United Arab Emirates.

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."

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.