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AMD Ditches the Costly Chip Manufacturing to Focus on Design

By - Source: Tom's Hardware | B 14 comments

The media this morning is busy working itself into a frenzy about an announcement from AMD scheduled for early Tuesday.

A notice went out Monday night informing the press and media analysts that AMD would be making a “significant corporate announcement” today at 8:00 a.m. EDT. While the email didn’t reveal much of what we can expect other than “prepared comments” from CEO Dirk Meyer and a few other executives, followed by a questions and answers session for media analysts, a press release sent early this morning confirms suspicions that today’s conference call will be a formal confirmation that the company plans to spin off it’s expensive chipmaking business and instead focus on microprocessor design.

AMD has been struggling for quite a while and now, under new leadership from CEO Dirk Meyer, the winds of change are expected to solve some of the cashflow problems the company has been having as of late. The winds of change, in this instance, come in the form of an investment from two Abu Dhabai firms amounting to at least $6 billion. The money will shrink AMD’s debt and see the company spin off chip manufacturing to a second company run by former AMD CEO, Hector Ruiz.

The new chipmaking company will operate under the name the Foundry Company for now and will be 44.4 percent owned by AMD with the rest owned by Advanced Technology Investment Company. The Foundry Company is currently planning a factory in upstate New York, which will employ a staff of 1,400. As part of the plans, the company’s factory in Dresden, Germany will also be upgraded.

AMD CEO, Dirk Meyer, said in a statement that the decision to spin off chipmaking was about improving finances and creating a company with a tightened focus. The company hopes that rethinking the structure of the company will give AMD a second wind in competing against rival, Intel.

We’ll bring you more following the conference call and Q&A with Dirk Meyer and the other big wigs at AMD.

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  • -4 Hide
    Pei-chen , October 7, 2008 5:33 PM
    So AMD will be Arabic from now on.
  • -4 Hide
    Chazwuzzer , October 7, 2008 5:47 PM
    That's what I was thinking.... I guess they'll own it all eventually.
  • 0 Hide
    joebob2000 , October 7, 2008 5:49 PM
    Quote:
    AMD Ditches the Costly Chip Manufacturing to Focus on Design


    Is this supposed to be sarcastic? Isn't the chip manufacturing business the point that they actually MAKE money on their designs? Last I checked my PC wouldn't run with a blueprint of a chip smashed between the socket and heatsink...
  • Display all 14 comments.
  • -3 Hide
    dvmoo7 , October 7, 2008 6:01 PM
    In the long run, AMD will be owned by this foreign country..... Sad, very sad...
  • 0 Hide
    joebob2000 , October 7, 2008 6:13 PM
    dvmoo7In the long run, AMD will be owned by this foreign country..... Sad, very sad...


    Think about that the next time you fill up your car. Did you think the billions of dollars *A DAY* we send to OPEC nations would only be used to buy Finding Nemo DVDs and Britney Spears CDs? Be thankful they want anything to do with us at all, they could just as soon be spending all the money in China.
  • -2 Hide
    blippo311 , October 7, 2008 7:23 PM
    hmmmm....
  • -1 Hide
    Anonymous , October 7, 2008 8:49 PM
    "Be thankful they want anything to do with us at all, they could just as soon be spending all the money in China.'

    A bit of a difference - they are not buying products, they are buying a company and technology. And if you read the press reports carefully, it states that AMD's 44% stake will decrease over time as Abu continues to pour in new capital.

    In the end this will be a $8Billion transfer of state of the art technology overseas. This is a way for things to get accepted by regulators as the voting is 50/50 in the foundry (for now). As soon as the x8 license is renegotiated (2010) to get rid of the clause that limits AMD's outsourcing to no more than 20% of it's CPU's, AMD will lessen their stake in the company and the company will essential become TSMC/UMC/Chartered-like foundry run by a Abu Dhabai; and capable of making chips for the highest bidder without those 'pesky' technology export restrictions.

    The long term ramifications of this deal run from this making AMD a viable long term competitor (the intention) to a complete disaster - if AMD doesn't remain viable who ends up owning the technology? Do you really think a design company is going to be making enough cash to continue to keep up with 44% of the capital investments that are needed by the foundry? What happens when AMD's stakes falls to
  • 2 Hide
    jaragon13 , October 7, 2008 9:19 PM
    Quit beaching about over seas anyways,AMD wasn't well off anyways.

    I'm just glad Hector Ruiz isn't in control of processor design.
  • 1 Hide
    smalltime0 , October 7, 2008 11:09 PM
    "I'm just glad Hector Ruiz isn't in control of processor design."
    All through that article I was thinking that too.
    "Isn't the chip manufacturing business the point that they actually MAKE money on their designs?"
    When you look at it that way yes, but having their own chip production equipment means costlier ships=less margin. The manufacturing side is costing them ATM.
  • 0 Hide
    ossie , October 8, 2008 6:11 AM
    "Abu Dhabai": Is that a booshie style mix of Abu Dhabi and Dubai (both in the UAE)? Giografy is such a complicated matter today...
  • 0 Hide
    Anonymous , October 8, 2008 8:28 AM
    "When you look at it that way yes, but having their own chip production equipment means costlier ships=less margin. The manufacturing side is costing them ATM."

    OK simple math:
    Current AMD chip price = cost of producing chip + AMD margin (if they were profitable)
    New AMD chip price = cost of producing chip + foundry margin + AMD margin

    See the problem yet? AMD has just added foundry margin into the cost of the chip. So either that comes out of AMD's margin (again if they were profitable) or the production cost has to come down by at least the amount of the foundry margin in order for prices to stay even.

    The problem is the investors are bringing nothing to the table but money - they have no expertise in chip manufacturing, so guess what? The factory in the foundry is going to run the same as current for the near to intermediate future.

    Long term with additional fabs coming on line like NY (2011?); the costs may come down via economies of scale, but short term someone is going to eat the foundry margin - it's either AMD's margin or the consumers (via chip prices)
  • 0 Hide
    Anonymous , October 8, 2008 8:30 AM
    So basically going the foundry is actually going to DECREASE Margins. You have to absorb the foundry profit/margin and you have a competitor which is not paying a middleman, so it will be harder to compete price-wise without reducing margins.
  • 0 Hide
    captaincharisma , October 8, 2008 4:23 PM
    Quote:
    In the long run, AMD will be owned by this foreign country..... Sad, very sad...


    i think that was what former ATI Canadian employees said too :) 
  • 0 Hide
    Retrogame , November 18, 2008 5:08 PM
    AnonymousSo basically going the foundry is actually going to DECREASE Margins. You have to absorb the foundry profit/margin and you have a competitor which is not paying a middleman, so it will be harder to compete price-wise without reducing margins.


    Not necessarily. You make your money on SALES. And SALES is driven by EMOTION. I mean, let's face it, ignoring R&D cost up front, what is the margin on one of Intel's "Extreme" processors?? They sell it for $999 when it costs probably only a few percentage points more to build it (again, ignoring overhead upfront per unit) than a processor they sell for $100. And AMD started that nonsense with the FX series processors. 20% more power for 200% more money.

    If they can set up a good workflow of design and then have a highly streamlined, efficient manufacturing partner, they stand a chance. It's better than going into perpetual deficit.

    If you've ever worked for a large company, especially one that suffers from poor management, you come to realize that massive inefficiency and disorganization can run rampant and here's why: upper management are idiots, so then the best of middle management and skilled people get fed up with it and they leave to work for the competition. And it goes down the line from there. If a company that's gone into massive inefficiency and that's lost its edge wants to compete, it needs to change the way it does business proactively.

    It needs to get back "consumer confidence" so that people, even we technogeeks, will buy those CPUs and GPUs on emotion, pay the extra for the deluxe model.