AMD cuts loose GlobalFoundries stake

Advanced Micro Devices said last month that it was in the middle of renegotiating its wafer-supply agreement with its former foundry, which was spun out as GlobalFoundries and is now part of a much larger chip manufacturing operation. The deal is now done – and so is AMD's stake in GlobalFoundries itself.

Since spinning out its Dresden, Germany chip factories in late 2008 to the Abu Dhabi state investment vehicles Advanced Technology Investment Company (with a 44.4 per cent stake in the original GlobalFoundries) and Mubadala (which took a 19.3 per cent stake), AMD's stake in GlobalFoundries has been shrinking over time. AMD's stake was partially diluted when ATIC borged Chartered Semiconductor for $3.9bn in September 2009 and then further diluted as ATIC has pumped billions of dollars more into its existing fabs and a shiny new one in Malta, New York. Prior to the latest wafer supply agreement negotiated this week, AMD's stake in GlobalFoundries was around 9 per cent, and with this complex negotiation. It now goes to zero.

AMD is now absolutely fabless. Which seems to be a good thing unless you are AMD archrival Intel and maybe, for a few more years, AMD fab development partner IBM.

GlobalFoundries has had troubles with its 32 nanometer and now 28 nanometer processes ramps, and this, more than any other factor, has hurt AMD's finances in recent quarters. AMD was not able to get enough Fusion APU (hybrid CPU-GPU) parts to satisfy desktop and notebook customers, and the "Interlagos" Opteron 6200 server processors were delayed a few months last year as well because of yield issues. In April 2011, while the company was looking for a new CEO, AMD rejigged its wafer supply agreement with GlobalFoundries. But with Rory Read and a whole new set of execs in charge – along with revamped roadmaps – AMD and GlobalFoundries went back to the negotiating table to get the chip roadmaps and chip fabs in better alignment.

Under the original wafer-supply agreement, which runs through 2024, AMD was paying for wafers on a cost-plus basis. When there were troubles with the 32 nanometer ramp, AMD figured out it needed to incentivize GlobalFoundries to get the kinks worked out, and in April last year it modified the deal to basically pay a little more for working chips if the foundry could speed up the ramp. In January of this year, AMD was to revert to a cost-plus pricing on a per-wafer basis.

With this week's amendment, AMD is transferring its stake in GlobalFoundries – 1.06 million shares worth around $278m – to the fab. AMD had a five-year deal for the exclusive right to manufacture certain 28 nanometer Fusion APU chips, and the foundry is now waiving that right.

However, in a conference call with Wall Street analysts on Monday, Thomas Seifert, AMD's CFO – who was interim CEO when the 2011 amendment was negotiated – said that AMD did not intended to dual-source its APUs at this time. While Seifert wouldn't say it, AMD can now threaten to do exactly that, and then actually do it – which might prove to be motivation enough to work on yield improvement for both 32 nanometer and 28 nanometer processes. AMD's GPU partner, Taiwan Semiconductor Manufacturing Corp, which also makes Nvidia's GPUs, has 28 nanometer processes on the ramp right now and would probably like the extra business (if it could handle it, that is).

In exchange for this APU waver, AMD has agreed to pay GlobalFoundries $425m, payment of which will be spread out over the next two years. The amended agreement from April 2011 had cash incentives, worth $420m, that AMD had agreed to pay GlobalFoundries during 2012 for 32 nanometer capacity – and these quarterly fees are now waived.

AMD said in a filing with the Securities and Exchange Commission on Monday that it had paid approximately $904m for wafers and $79m in research and development to GlobalFoundries. In 2012, the company expects to spend $1.5bn on wafers and $71m on fabrication R&D with its former in-house foundry.

AMD is not revealing any volume commitments that it is making with GlobalFoundries, or vice versa, but it did confirm that it is back to a fixed cost for wafers. The company will continue to dual-source its Fusion APUs at the 28 nanometer node with both GlobalFoundries and TSMC. ®