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.
Advanced Micro Devices chip plant spin-off rumors won't die. Probably because they may be partially--or more than partially--true.
AMD Dresden facility to be spun off?
(Credit: AMD)But the timing is the big unknown. AMD claims the launch of its so-called Asset Smart strategy is not imminent.
The latest rumor was triggered by a blog at the Austin American Statesman that said AMD may "spin-off of its manufacturing operations within two weeks." The blog cites a Wall Street securities analyst, John Lau with Jefferies & Co.
AMD said that's not so. "We hope to get it done by the end of the year. There's been no change on our end," said Drew Prairie, an AMD spokesman.
"I wouldn't expect an urgent phone call from me in the next two weeks," he said, implying that the timing would not be in this time frame.
AMD has two chip factories in Dresden, Germany, that are at the center of the spin-off speculation.
Prairie also cautioned that speculation about the structuring of the spin-off may not be accurate. "I wouldn't take that assumption from (analysts) as definitive. There's a lot of nuances and gray areas, as to what we're going to be doing. A lot the speculation is painting things as black and white. I don't think, come announcement day, it will be that black and white."
He also reiterated that the proposed chip plant in upstate New York "would be a critical part of our manufacturing."
Analysts have also speculated that AMD may receive funding along the lines of the $622 million investment AMD received from Mubadala Development Co., the investment arm of the Abu Dhabi government.
IBM may play a small role in the Asset Smart strategy also. Currently, AMD and IBM do joint research and development on next-generation chip technology in a location close to the proposed AMD chip facility in Malta, N.Y.
Update at 2:15 p.m. PDT: Adds comments from AMD spokesperson.
Advanced Micro Devices is in a bind. The chipmaker is caught between the dire need to reduce manufacturing capacity on its books with pressure to build a $3 billion plant in New York state.
AMD's chairman Hector Ruiz is touring the Malta, New York site this week-- referred to as the Luther Forest Technology Campus--as Saratoga County installs a $79 million water pipeline that will service the facility. Moreover, this week, the town of Malta voted unanimously to approve plans for the plant, according to the The Saratogian, a Saratoga Springs, NY-based newspaper.
AMD need only say "I do"--a green light from AMD would seal the deal and release $1.2 billion in state incentives.
Concept of AMD New York state plant
(Credit: AMD)If it was only that easy. Back in the halcyon days of 2006 when AMD was basking in its status as the smarter, better chipmaker (having humbled Intel with its superior Opteron processors), a headline in the Timesunion proclaimed: "AMD chip plant deal was years in the making." It sounded like nothing less than a foregone conclusion that AMD had committed to building the facility.
And as recently as March 2008, the Daily Gazette of Schenectady, NY quoted U.S. Sen. Charles Schumer as saying that there was "no doubt in his mind" that AMD will "commit to a project to build a chip fabrication plant" in Malta.
Then, the report added: "Although he said he couldn't guarantee it."
Ay, there's the rub. What the report didn't say is that AMD is now in the midst of a major restructuring as it reels from a string of quarterly losses ($1.2 billion in the second quarter) and is shedding assets as quickly as it can. AMD sold its digital TV business to Broadcom this week after saying back in July it would get out of the handheld chip business too.
Reports also seem to be skirting the fact that AMD never completely committed to the plant. "It was such big news for the region. It got built up a little bit and people made a natural assumption that this means that we're building a new fab," said Travis Bullard, an AMD spokesperson. "When in reality all that was really announced (in 2006) was that we had this option to build a fab."
Enter Asset Smart--AMD's plan to rejigger manufacturing assets on its books so it can go forward with the Malta facility (among other commitments). "This is about their books and their finances more than their operations," said Dean McCarron, principal and founder of Cave Creek, Arizona-based Mercury Research. "It's about getting rid of the capital requirements for manufacturing."
"When the New York deal was done (in 2006) AMD was well on its way to ascendancy in terms of market share," McCarron said. "The belief was that two current-generation fabs would be necessary to satisfy full demand. If they got to the 30 percent goal (share of the x86-architecture chip market). But they're not at the goal, they're roughly in the 20 percent range."
So, how will AMD reconcile the countervailing forces of shedding manufacturing assets and building another $3 billion plant? One theory is that they get one of the sovereign wealth funds like Abu Dhabi to build a factory for them, said McCarron. In November of last year, AMD received $622 million in funding from Mubadala Development Co., the investment arm of the Abu Dhabi government.
But it is tricky because AMD would likely have to retain majority ownership. "There may be some issues with AMD having to retain controlling ownership. In order to be OK with patent licensing agreement with Intel," McCarron said. "Probably end up with some entity that's halfway between AMD and some other concern with a very interestingly structured contract built around it."
Depending on how this shakes out, "it doesn't preclude New York from happening," McCarron said. It would have to involve in some way another large player because "the whole reason for Asset Smart was that the fabs that they owned were a drag on their finances. Add another (plant) on top of that...that would not be the most prudent thing," McCarron added.
AMD thinks Asset Smart is a prudent move. "The option to build the fab in upstate New York is going to be a piece of the Asset Smart strategy," AMD's Bullard said. "We need to announce the Asset Smart strategy first and get all those pieces locked into place first. And then we'll be in a position to announce what we'll do with (the Malta) Fab 4X."
AMD's main manufacturing facilities are currently in Dresden, Germany.
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