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."