AMD Scaling Back Chip Purchases from GlobalFoundries
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."
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.
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.
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.
Ouchy for a faltering company...
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.
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.
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.
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.
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.
Lets hope not u-u
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.