AMD considering getting out of fab business

Ace Pace · Post by **Ace Pace** » 2007-06-20 12:04am

2007 has not been kind to AMD. The company saw its workstation market share slip, has taken on $2 billion of new debt, lost almost $1.2 billion over the past two quarters, has been unable to close the gap with Intel when it comes to CPU performance, and has been the subject of recent rumors that Barcelona will be delayed. AMD has been in cost-cutting mode for the past several months and, according to IDG News Service, is considering getting out of the fabrication business.

Currently, AMD operates two fabs: Fab 30 and Fab 36. Fab 30 is in the process of being fitted to handle 300mm production, and when the transition is complete, it will be rechristened Fab 38. It hasn't come cheaply, either—the chip maker has invested over $2.5 billion to expand its 300mm capabilities. AMD has also been talking up a new 45nm plant in Malta, NY, that would come online in 2009.

Speculation is building in the analyst community that AMD will attempt to further cut costs by outsourcing more—or all—of its chip making as early as 2008. One Citigroup analyst is predicting a "transformational move" that would result in AMD's lower-end CPUs being manufactured by a third party and possibly selling off part or all of its Dresden, Germany facility. Another report from Goldman Sachs outlines the investment firm's belief that the company will leave manufacturing completely in the hands of third parties.

Currently, Chartered Semiconductor handles some of AMD's manufacturing, and AMD told Ars Technica last fall that its plans called for Chartered to eventually manufacture CPUs on a 65nm process. AMD also has a long-standing partnership with IBM under which AMD gets to use Big Blue's East Fishkill, NY, plant for R&D and manufacturing.

An AMD spokesperson told Ars Technica that the company is looking to extend a model that it already has in place to other parts of the manufacturing and supply chain. "For instance, on the process technology side, we have a joint development agreement with IBM," AMD spokesperson Drew Prairie told Ars. "We use their 300mm R&D facilities right now. One extension of that is looking at taking some of the assets that are currently on our books off our books." We also asked whether AMD was head in the direction of going completely fab-less as part of its asset-light strategy. "At no time did we signal that going fab-less was part of the discussion with asset-light," said Prairie.

Getting out of manufacturing is certainly a plausible—if not likely—scenario for AMD. It would allow AMD to drastically cut costs and possibly stave off a private equity buyout. Outsourcing chip manufacturing would save the company a large chunk of money, and other semiconductor manufacturers—TI and Sony come to mind—have taken steps towards a fab-less existence.

But it's a different story for CPU makers. From a technical perspective, ditching your fab capabilities is an iffy proposition as it introduces a separation between design and manufacturing that could ultimately stretch out development times. AMD would no longer be able to design CPUs with its own fabs in mind, as both it and Intel currently can. AMD may be confident that its history of successful partnerships with the likes of Chartered and IBM will allow it to overcome the obstacles inherent in becoming a fab-less company and that it would be better off selling its own manufacturing facilities to free up cash.

Arthur_Tuxedo · Post by **Arthur_Tuxedo** » 2007-06-20 12:16am

Moral of this story is that analysts aren't always right. AMD took their advice and bought ATI, and now the future of the company is in serious jeopardy. If they hadn't merged, they'd have had enough cash to weather the Core 2 storm long enough to fire back effectively. Especially ill-advised since ATI is in the exact same position of getting hammered by a superior product.

InnocentBystander · Post by **InnocentBystander** » 2007-06-20 12:37am

They needed to buy ATI in order to grow their business. They needed a chipset to in order to really get into the oem market. The merger was a risk, but what other choices did they have? They have to grow, and that means selling to OEMs. Of course this is was totally not the right year to drop the ball on their product (and ATI's product too, geeze!).

Hopefully they won't tank their ability to grow while cutting costs. Of course at the end of the day they still need to deliver a really good processor for the right price, thats kinda the business they are in. If they can't do that... they've got nothing.

The Kernel · Post by **The Kernel** » 2007-06-20 12:49am

This is a horrific idea obviously. AMD has too many disadvantages against Intel as it is without being at the mercy of their foundries. Can you imagine what the nVidia vs. ATI picture would have looked like if nVidia had access to a state of the art fab for their production? It would have been an out and out slaughter.

Ace Pace · Post by **Ace Pace** » 2007-06-20 05:42am

The Kernel wrote:This is a horrific idea obviously. AMD has too many disadvantages against Intel as it is without being at the mercy of their foundries. Can you imagine what the nVidia vs. ATI picture would have looked like if nVidia had access to a state of the art fab for their production? It would have been an out and out slaughter.

If nVidia had acess to real fabs, NV30 would never have happened and ATi would never have gotten any big design wins. That..would be interesting.
It's a horrible idea, remember what happened to Transmerta(sp?) when they moved to fabless?