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AMD Scaling Back Chip Purchases from GlobalFoundries

By - Source: AMD | B 29 comments

To save money, AMD is reducing its wafer order agreement with Globalfoundries.

On Thursday AMD said that it has successfully amended its Wafer Supply Agreement (WSA) with Globalfoundries Inc as part of its new operating model revealed during its third quarter 2012 earnings announcement. As a result of the amendment, AMD expects to return to free cash flow generation in the second half of 2013.

To help the struggling microprocessor company conserve cash in a declining PC market, the company has changed its agreement with Globalfoundries so that it can scale back on wafer purchases. Just recently the company said it plans to sell its campus in Austin, Texas – and then lease it back – in order to raise cash. The company has also been laying off engineers while looking for new markets, eager to keep its cash reserve from dipping too low.

"Today's announcement demonstrates that the long-term strategic partnership between AMD and Globalfoundries continues to benefit both companies," said Rory Read, president and chief executive officer, AMD. "Globalfoundries' performance in meeting our delivery requirements in 2012 was strong and they remain a strategic and important foundry partner moving forward."

AMD said that it estimates a $115 million purchase with Globalfoundries in the fourth quarter 2012 and $1.15 billion in fiscal 2013. The company said it was also committed to purchasing wafers from Globalfoundries for approximately $250 million during the first quarter of 2014. As for the rest of 2014, AMD will make negotiations for the remainder sometime in 2013.

"AMD will make a termination payment of $320 million related to the take-or-pay agreement with Globalfoundries associated with the adjusted wafer purchase commitments in fourth quarter 2012," the company said.

The cash impact of Globalfoundries' termination fee, according to AMD, will spread over several quarters. The first $80 million payment will be made by December 28, 2012, and the second $40 million payment will be made by April 1, 2013. A $200 million promissory note issued by AMD to Globalfoundries is due on December 31, 2013.

AMD said that as it moves to standard 28-nm process technology, the company will reduce future reimbursements to Globalfoundries for certain research and development costs.

"We are committed to develop and grow our business with Globalfoundries, increasing our engagement across our industry leading APU and graphics roadmaps," Read added. "The newly amended agreement is another step we are taking to further strengthen our relationship with Globalfoundries as well as AMD's financial foundation."

 

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  • 18 Hide
    A Bad Day , December 7, 2012 9:23 PM
    abbadon_34They should have cut the prices across the board on all cpu to make them value competative, they could own the first or second SMB if the price was right


    It would be stupid to engage in a price war against Intel, who has a much larger cash reserve and better fab plants. They can produce processors at lower profit margins because the manufacturing cost per processor is less than AMD's suppliers.
  • 12 Hide
    matt_b , December 7, 2012 10:54 PM
    StickmansamGLobal Foundries is their old fab but it was getting too much downtime due to low sales so they decided to spin it off so if GF was losing money, it wouldn't effect AMD. What AMD should have done was to fab for other companies to make up the shortfall and not expand the fabs. That way they can keep more of the profit margin in house. Something that sort of make sense back then is coming back to bite them a new one.

    You know, I thought the same thing. Of course I am not an insider to AMD to know what all went on, but common sense would say that if you have idle time, down time, or just plain under-utilization, then you try to contract out with other suppliers/businesses to become customers and put a margin of profit back in your pocket. Not only does this give the opportunity to diversify your income (you could be doing poorly while your other customer's demands for chip wafers is skyrocketing), but it also keeps overall quality at a higher level because you still retain production control of your product. It was a bad move back then I thought.
  • 11 Hide
    stickmansam , December 7, 2012 10:29 PM
    jaber2Why didn't AMD do like intel and fab own waffers? you'd think they would have better control over engineering and quality, the best thing AMD can do now is spend its energy on the expanding smart phone and tablet market, which Intel just decided to get into

    Global Foundries is their old fab but it was getting too much downtime due to low sales so they decided to spin it off so if GF was losing money, it wouldn't effect AMD. What AMD should have done was to fab for other companies to make up the shortfall and not expand the fabs. That way they can keep more of the profit margin in house. Something that sort of make sense back then is coming back to bite them a new one.
Other Comments
  • 5 Hide
    A Bad Day , December 7, 2012 8:45 PM
    "AMD will make a termination payment of $320 million related to the take-or-pay agreement with Globalfoundries associated with the adjusted wafer purchase commitments in fourth quarter 2012," the company said.

    Ouchy for a faltering company...
  • 8 Hide
    DRosencraft , December 7, 2012 8:51 PM
    Logical step not to buy large quantities of a product you can't manufacture and then sell. If you're not gonna sell as much processors, then no need for all those wafers sitting around. The concern is, what makes this worrying, is the image it sends that AMD is weak and isn't expecting to make any waves next year with any new products. Or from another more optimistic perspective they could be setting themselves up for trouble of supply shortages if they do make a strong come back. AMD is in so much flux right now, but at least they still have some cash reserves and a forthcoming return to profitability in the not too distant future.
  • -9 Hide
    abbadon_34 , December 7, 2012 9:08 PM
    They should have cut the prices across the board on all cpu to make them value competative, they could own the first or second SMB if the price was right
  • 18 Hide
    A Bad Day , December 7, 2012 9:23 PM
    abbadon_34They should have cut the prices across the board on all cpu to make them value competative, they could own the first or second SMB if the price was right


    It would be stupid to engage in a price war against Intel, who has a much larger cash reserve and better fab plants. They can produce processors at lower profit margins because the manufacturing cost per processor is less than AMD's suppliers.
  • -4 Hide
    jaber2 , December 7, 2012 10:23 PM
    Why didn't AMD do like intel and fab own waffers? you'd think they would have better control over engineering and quality, the best thing AMD can do now is spend its energy on the expanding smart phone and tablet market, which Intel just decided to get into
  • 11 Hide
    stickmansam , December 7, 2012 10:29 PM
    jaber2Why didn't AMD do like intel and fab own waffers? you'd think they would have better control over engineering and quality, the best thing AMD can do now is spend its energy on the expanding smart phone and tablet market, which Intel just decided to get into

    Global Foundries is their old fab but it was getting too much downtime due to low sales so they decided to spin it off so if GF was losing money, it wouldn't effect AMD. What AMD should have done was to fab for other companies to make up the shortfall and not expand the fabs. That way they can keep more of the profit margin in house. Something that sort of make sense back then is coming back to bite them a new one.
  • 12 Hide
    matt_b , December 7, 2012 10:54 PM
    StickmansamGLobal Foundries is their old fab but it was getting too much downtime due to low sales so they decided to spin it off so if GF was losing money, it wouldn't effect AMD. What AMD should have done was to fab for other companies to make up the shortfall and not expand the fabs. That way they can keep more of the profit margin in house. Something that sort of make sense back then is coming back to bite them a new one.

    You know, I thought the same thing. Of course I am not an insider to AMD to know what all went on, but common sense would say that if you have idle time, down time, or just plain under-utilization, then you try to contract out with other suppliers/businesses to become customers and put a margin of profit back in your pocket. Not only does this give the opportunity to diversify your income (you could be doing poorly while your other customer's demands for chip wafers is skyrocketing), but it also keeps overall quality at a higher level because you still retain production control of your product. It was a bad move back then I thought.
  • -4 Hide
    A Bad Day , December 7, 2012 11:08 PM
    OR, the fab plants that AMD owned cost too much for them to maintain, so they figured why not get rid of it.
  • -7 Hide
    tomfreak , December 7, 2012 11:30 PM
    A Bad DayIt would be stupid to engage in a price war against Intel, who has a much larger cash reserve and better fab plants. They can produce processors at lower profit margins because the manufacturing cost per processor is less than AMD's suppliers.
    it would be stupid to buy a cpu that is not price competitive against Intel.

    oh of cos I will get thumbdown for this as usual.
  • 9 Hide
    stickmansam , December 8, 2012 12:02 AM
    Tomfreakit would be stupid to buy a cpu that is not price competitive against Intel. oh of cos I will get thumbdown for this as usual.

    FX6300 is in fact price competitive against the i3 and the i5. It perfroms prertty much smack in between them for the most part and costs about the same as the most expensive i3, making it for the most part, a better bargain than the i3.
  • 4 Hide
    acadia11 , December 8, 2012 12:03 AM
    jaber2Why didn't AMD do like intel and fab own waffers? you'd think they would have better control over engineering and quality, the best thing AMD can do now is spend its energy on the expanding smart phone and tablet market, which Intel just decided to get into


    They did actually, but creating a Fab cost a couple billion dollars each. They just don't have the cash that Intel has to do create Fabs , nor do they have the manufacturing know how to do the die shrinks as quickly as Intel does. Global Foundries is actually a spin off of AMD's FAB unit, they brought in partners, to purchase their FAB Business, but kept some stake, and then last year the decided to sell their stake all together. When the Athlon was hot and in the late 90's to mid-2000's , AMD was strong and hadthe cash to build fabs, they don't today.
  • 1 Hide
    acadia11 , December 8, 2012 12:10 AM
    Also, each new die shrink requires a new fab or retrofitting an old fab to the new hardware, while Intel had a dozen or more fabs, retrofitting 1 to a new process, did not mean down time in production of older chips. On the other hand AMD had only 3 Fab 25, Fab 30, Fab 36 (and 38) (Fab 3x' really are 1 facility in Dresden) , Fab 25 was in Austin Tx. The Dresden facility is what became Global Foundaries. If anything went wrong in AMD's switch / die shrink it severely hampered production, Intel wasn't afflicted with the same issue, plus intel had the money, to do the retrofits and new fabs more often. Intel is the worlds #1 fab owner.
  • 0 Hide
    azraa , December 8, 2012 12:16 AM
    Less stock, higher prices?
    Lets hope not u-u
  • 1 Hide
    beayn , December 8, 2012 1:31 AM
    Sadface for AMD. Lack of competition means steeper Intel CPU prices for everyone.
  • -4 Hide
    tomfreak , December 8, 2012 1:52 AM
    StickmansamFX6300 is in fact price competitive against the i3 and the i5. It perfroms prertty much smack in between them for the most part and costs about the same as the most expensive i3, making it for the most part, a better bargain than the i3.
    u forgot the performance is unreliable vs the Intel chip, FX CPU performance competitive multi-threaded only + higher power consumption + missing GPU. These are also part of the factors when u buy a CPU. u cant just compare price/performance at certain situation.
  • 3 Hide
    de5_Roy , December 8, 2012 2:28 AM
    one day, after amd has come out of this current slump and are doing well again, we'll look back at this and laugh. hopefully that day is coming soon. hopefully.
  • -4 Hide
    killerclick , December 8, 2012 4:01 AM
    I guess this is the right time to buy my last desktop CPU/MB, use it for the next 5 years, and then move on to whatever is the new thing, since desktops will become relics in that time. Apparently, too many people just need to take their computers to the toilet or to Starbucks or are simply homeless and can't use a powerful desktop.
  • 1 Hide
    Wisecracker , December 8, 2012 10:11 AM

    This is good and bad for GloFlo.

    The bad is more production likely moving to TSMC (and maybe, Samsung) over the next 12-18 months. The good is the research at 22nm and below on ET-SOI will likely be significant as the industry moves to optical interconnects on the CPU/APU die.

  • -3 Hide
    ScrewySqrl , December 8, 2012 11:12 AM
    I predict AMD is just beginning to circle the drain. It'll be gone in 10 years
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