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Meyer says "smart men have foundries"

AMD is struggling with returning to profitability at the same time it is fighting with Intel in the X86 processor market. The struggles have led to some hard decisions at AMD that have included layoffs and pay cuts.

As AMD prepares to shed its foundry operations and spin them into a new company, AMD CEO Dirk Meyer is opening up about the changes. AMD founder Jerry Sander has a maxim he lived by when AMD first started that stated, "Real men have fabs."

Meyer suggests that while Sander's was a smart man, the market has changed significantly since AMD was founded. Meyer suggests a new maxim, "Smart men have foundries." Meyer said during an interview with eWeek, "Jerry was a real smart guy but the industry has changed a lot since that time, so I think, ‘Smart men have foundries,’ is my new quote."

Whatever Meyer's new maxim for success is, the fact remains that spinning the foundry portion of AMD off into a new company was a good way for AMD to get much needed capitol and remove debt from its books at the same time.

EWeek reports that the spin off means AMD received $800 million in capital and was able to remove $1.2 billion in debt from its books. The majority of that debt was from the purchase of ATI, which continually haunts AMD.

Meyer continued saying, "Clearly it’s going to be a culture change for the company. There are a large number of capable manufacturing technologists and manufacturing people who will no longer be part of AMD, but the good news is they get to create a new company. Some people have asked me about the risk—as to imply there are big risks—but honestly I think we are on top of what we have to do both in terms of R&D and supply chain operations."

The spinoff of the foundry portion of the company was announced in October of 2008 and was temporarily called The Foundry Company. The spin off was finally approved by AMD shareholders this month allowing the process to continue.

Former AMD CEO Hector Ruiz will head The Foundry Company and the official name of the company will be announced soon according to eWeek. The split will allow AMD to focus on the design and marketing of CPUs to better compete with Intel.

Intel has moved well ahead of AMD in many markets and AMD has work to do to regain ground it has lost. AMD has been hit with a number of significant losses over the last several years that have impaired the company. The most recent loss came in 2008 with AMD posting a loss for the year of $3 billion.

Meyer also talked a bit about Intel and its claim that license agreements in place between AMD and it would not be covered for the new company. Meyer said, "I think it’s pretty clear that they [Intel] are trying to instill fear, uncertainty, and doubt in the minds of our customers, shareholders and other stakeholders."

AMD still maintains that the licensing agreements are in effect despite the spin off.

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still haunts? um, what are you smoking?
By Saist on 2/27/2009 1:40:32 PM , Rating: 4
I found the still haunts line to be highly out of place in a real news post, though completely in line with AT/DT's anti-AMD hard-on. Last time I checked AMD was ripping up the sales charts with the HD4x00 series, and their current king-of-the-hill card, the HD4870 X2, when crossfired has enough grunt to prevent GPU-limitations even when hitting resolutions of 2560x1600. Nvidia still has no proper answer HD4x00 lineup, neither on price nor features... and that's a haunt? No. That's a AMD made the right bloody choice you gits .

By Adul on 2/27/2009 1:57:06 PM , Rating: 4
There are other charges that are related to the ATi acquisition that has continue to haunt AMD.

RE: still haunts? um, what are you smoking?
By davekozy on 2/27/09, Rating: -1
RE: still haunts? um, what are you smoking?
By Lugaidster on 2/27/2009 6:11:43 PM , Rating: 5
What matters here is economics. The 260 is competitive with a GPU that is half it's size. Meaning that AMD makes more money than Nvidia when they sell a 4870. You have to remember that if 48x0 gpus weren't what they were, gtx260s would have a way bigger price.

On another subject, Intel gains a lot more money when they sell a CPU than AMD does due to size too.

RE: still haunts? um, what are you smoking?
By PrinceGaz on 2/27/2009 8:29:39 PM , Rating: 3
+1. It's not who has the fastest card that matters, but who is making the most money from the cards they sell.

the poster before you said:
AMD does have better low to mid range cards 4670, 4830, 4850 but few enthusiasts use these in single card configurations

Yes, which means AMD have the right idea when it comes to graphics cards. At the end of the day, the balance-sheet is almost unaffected by the relatively few "enthusiasts" buying graphics-cards like the GTX285. AMD don't care that enthusiasts aren't buying 4670, 4830 or 4850 cards for single GPU setups, because they are making a helluva lot more money selling those more economical cards in much higher quantities to the upper-mainstream sector.

RE: still haunts? um, what are you smoking?
By bjacobson on 2/28/2009 1:00:13 AM , Rating: 2
Just for the record, subject verb agreement dictates the correct diction would be "AMD has", "Sony has", "Nintendo is"; as opposed to "AMD/Sony has" or "Nintendo are". It seems to be a popular trend to do the opposite.

RE: still haunts? um, what are you smoking?
By bjacobson on 2/28/2009 1:00:47 AM , Rating: 1
**"AMD/Sony are"

Grammar police out.

By Viditor on 3/1/2009 10:56:53 PM , Rating: 2
I'll add to it then...spell check time.

"a good way for AMD to get much needed capitol and remove debt from its books at the same time"

"Capitol" means:
A building occupied by a state legislature or,
The government building in Washington where the United States Senate and the House of Representatives meet

To be fair, you correctly used the word "capital" in the next paragraph...meaning:

"Assets available for use in the production of further assets."
"Wealth in the form of money or property owned by a person or business and human resources of economic value"

Interestingly, Capital also refers to "a seat of government", just not the building at that seat...;)
And who said pedantism wasn't fun...

RE: still haunts? um, what are you smoking?
By chizow on 2/28/2009 8:31:09 PM , Rating: 2
Its sad to see what's happening to AMD/ATI but no reason to get all worked up over some colorful language. AMD made a strategically sound decision to acquire ATI but I'd say the last few years have proven it to be a horrible decision financially, as AMD is now worth less than what they paid for ATI just over 2 years ago. That's right, the combined firm is worth less than what they paid for ATI...clearly they overpaid and now they're forced to hack parts off just to stay afloat.

ATI continues to Haunt AMD in the sense that the continuous write-offs are significant enough to push AMD into the red in quarters they otherwise would've been profitable. Small profits here and there aren't going to signicantly impact their balance sheet and debt situation but it goes a long way with investor confidence. Breaking up 9-10 consecutive quarters of losses or whatever its up to now also certainly helps.

Lastly, don't kid yourselves too much about the 4x00 series, it was great sure, but it really only brought ATI back to competitiveness in the GPU market after being completely dominated for 2 years by Nvidia. All market data shows ATI gained very little ground in market share in the last 2 quarters (latest Peddie, Steam, etc) at the height of the 4800 series popularity and as of right now Nvidia wins in either price or performance, or both across the high-end.

RE: still haunts? um, what are you smoking?
By aj28 on 3/1/2009 3:29:16 AM , Rating: 2
All market data shows ATI gained very little ground in market share in the last 2 quarters (latest Peddie, Steam, etc) at the height of the 4800 series popularity.

Be that as it may, they aren't bleeding the way nVidia is.

Also, keep in mind the fact a certain other graphics company is growing in this market... It is tough for AMD (not to mention nVidia) to push their integrated graphics solutions in a processor market dominated by Intel. Low-priced E2000/E5000 series SKUs are beginning to take over the market once owned by the Athlon X2 line. While AMD has picked up some ground with its affordable quad-cores (which OEMs eat up), it is beginning to bleed low-end market share to Intel. This hurts nVidia as well because they still move a lot of 6100/7100 series chipsets, packaged with everything from Semprons to Phenoms, and unfortunately very few OEMs are willing to shell out for an Intel-supportive nVidia 9000 series chipset when they can get an Intel-made one much cheaper and keep the whole platform under one umbrella.

Most people still buy their computers pre-built... Unfortunately while most tech-savvy consumers see the very clear economic advantage of AMD's 4000 series, contrary to what we may think, we do not make up the majority of the market.

RE: still haunts? um, what are you smoking?
By defter on 3/2/2009 1:26:14 PM , Rating: 2
Be that as it may, they aren't bleeding the way nVidia is.

NVidia made significant profits while AMD made just losses during the past two years.

By reaperrr on 3/2/2009 2:09:56 PM , Rating: 2
I think he was referring to the current situation.

AMD is about to release Radeon 4890, lower prices for 4850 and 4870 significantly, release 4750/4770 at VERY competitive prices, release more RV7xx mobile chips, and unlocking the 4th core of X3 chips is only possible on 790GX boards. Nvidia will either lose marketshare in notebooks, desktop chipsets and discrete graphics, or will be forced to reduce prices of products that are already making hardly any money.

Their GT21x 40nm-Chips are seemingly delayed to Q3, at least one of them cancelled completely, and all "new" products planned until then are rebrands of existing parts with lower prices.

RE: still haunts? um, what are you smoking?
By Reclaimer77 on 3/1/2009 3:40:55 PM , Rating: 2
Nvidia still has no proper answer HD4x00 lineup, neither on price nor features

FUD alert. Major FUD alert.

RE: still haunts? um, what are you smoking?
By Viditor on 3/1/2009 11:05:49 PM , Rating: 2
Do you know what FUD means?
FUD is most often based on true facts that are used in a context to create Fear Uncertainty and Doubt...are you saying what the poster says is true?

Could you give an example of a good Nvidia/ATI lineup that compares well for Nvidia at similar price points?

By Reclaimer77 on 3/2/2009 8:14:35 AM , Rating: 2
He FUDded several times. First by claiming the 4870 is the performance king, which it's not. Then secondly claiming Nvidia has no answer to the 4870.

The 4870 has a poor fillrate compared to Nvidia cards, draws way too much power, and produces way too much heat. I was interested in buying one personally, but I feel these issues are a deal breaker. If they get resolved I would have no reason not to buy one myself. And an X2 card is out of the question. I will not sacrifice power consumption and thermal performance for the marginal gains in FPS those cards give.

Could you give an example of a good Nvidia/ATI lineup that compares well for Nvidia at similar price points?

The 4870 and the GTX 260 are both $200 on Newegg. And while the 4870 is still a pig, the GTX line is now on the new 55nm GPU which runs even more efficient and cooler.

Most benchmarks have the GTX 260 ahead by 6%, or the 4870 ahead by 6%. Either way, claiming Nvidia has no answer for ATI is fanboism.

By defter on 3/2/2009 1:24:15 PM , Rating: 2
What are YOU smoking?

Go check AMD's financials, during the last 9 quarters, their discrete GPU unit made a profit in only two quarters. In all other quarters it made a loss. And GPUs were just a part of ATI, other stuff (handheld + DTV) was also making losses for AMD, forcing AMD to sell it at a very low price.

Overall, ATI after acquisition has incurred large losses to AMD. Without even taking into account hefty interest fees that AMD had to pay for the loan they took for the ATI deal.

The business is about making money, it's not about winning some benchmark at 2560x1600.

Not sure
By yomamafor1 on 2/27/2009 12:53:18 PM , Rating: 2
Personally I have doubts about this move as being "smart" in the long run. The downsides completely outweigh the upside if AMD is to remain committed to capture more marketshare in the CPU market.

But again, time will tell.

RE: Not sure
By mvpx02 on 2/27/2009 2:08:46 PM , Rating: 3
It's certainly a tough pill to swallow. It saddens me to think about AMD spinning off its fabs, because it weakens the company in the long-term, but if spinning off its fabs is what AMD needs to do to ensure it makes it to the "long-term" in the first place, then it's difficult to justify keeping them. We'll just have to wait and see how it all plays out.

RE: Not sure
By batman4u on 2/27/2009 2:28:24 PM , Rating: 2
he who doesnt risk doesnt win. as with all great oportunity their is a great risk (decisions go both ways) and in this case a great oportunity or risk decision gone sour because of the bad management of Hector Ruiz i think is the best explanation i can think for what happened and my own opinion the way ruiz steered the company move was not appropiate, sure at the time i was excited but after seeing how their was no real sense of direction i just though of a spanish saying (zapatero a su zapatos)"shoemaker let him make his shoes" i mean AMD should have focused making CPUS and ATI their VGA cards and not merging and making a mess against a company that is 10 times stronger, moves against a Behemoth company is made carefully

but then again their are no IF's

RE: Not sure
By yomamafor1 on 2/27/2009 5:22:26 PM , Rating: 3
You're right in the sense that risks are always involved in a business decision. And in this case, as others have pointed out, there's no "short run" if they don't transfer the debt to the Foundry Co.

However, I think the decision to acquire ATI was not a bad one, although it was done in a bad time. As more companies move to sell a package (platform) as opposed to just a single product, AMD would have a hard time competing if they also don't have a package to offer.

Take Apple's iPhone for example, Apple not only sell the phone to the customer, they also integrated iTune connection capability for people to buy songs and videos, as well as App Store to encourage 3rd party software development. I believe it is the package that Apple's iPhone a hot seller, not just iPhone itself.

Similarly, AMD needs to offer a platform of their own in order to get a bigger share in the pie of the market. However they couldn't have done it in a worse time. The acquisition was made when Intel's Core 2 was launched, while ATi's own 2900XT was a failure. If Hector actually had taken the time to evaluate ATi's product, I'm sure he wouldn't just come to the conclusion of purchase at 5x the market value.

RE: Not sure
By batman4u on 2/27/2009 5:46:08 PM , Rating: 3
i also agree on AMD/ATI was in its time an excellent idea

i still am an AMD Loyalist and buy and will continue buying AMD cpus with mobos with AMD chipset and ATI videocards hoping to contribute and not watch the Best competition iNtel has had ever and then after AMD disolves watching how Celeron cpus go skyrocket high prices

pointing this i also would like to see if VIA is going to do something interesting

RE: Not sure
By reaperrr on 3/2/2009 2:15:33 PM , Rating: 2
It was the right decision, just bad timing. 6 months earlier, and AMD wouldn't have had to make as much debt to buy them, because at that time AMD stock was worth much more.

RE: Not sure
By FireSnake on 2/27/2009 4:06:10 PM , Rating: 3
If they wouldn't do that there wouldn't be any "long therm".

Was the ATI move really bad?
By joey2264 on 2/27/2009 12:58:00 PM , Rating: 5
I'm not sure what kind of business ATI is doing, but they are competitive (finally) in the GPU business, while AMD isn't nearly as competitive compared to Intel. Isn't that a great thing for the overall business of AMD?

RE: Was the ATI move really bad?
By Regs on 2/27/2009 1:17:54 PM , Rating: 2
What do you mean? The CPU was AMDs cash cow that turned into a dog over night. X2 went out dated, and the first phenom was a problem child. They had to dump a lot of money into Phenom I (65nm --> 45m) just to make it reasonably competitive.

Manufacturing x86 CPUs takes billions of dollars of capital to produce. AMD needs a return investment after spending all that money to make it. This spin off of the fabs means AMD no longer needs to spend a ton of money on capital to get the next chip out. Though the problem is what if the Foundry runs into their own problems and cannot produce what AMD has designed?

RE: Was the ATI move really bad?
By BSMonitor on 2/27/2009 1:41:06 PM , Rating: 4
No kidding, the best move AMD could make would be to allow Intel's Fabs to produce their chips!!

RE: Was the ATI move really bad?
By Pirks on 2/27/2009 2:52:11 PM , Rating: 1

RE: Was the ATI move really bad?
By JumpingJack on 2/27/2009 11:53:50 PM , Rating: 3
This spin off of the fabs means AMD no longer needs to spend a ton of money on capital to get the next chip out.

That ton of money on capital appears under the line item capital expense on the quarterly reports and balance sheets, but it does not mean they won't spend a ton of money after the split.

Two items here.

First, it costs money to make the physical CPU. The silicon wafer costs money, the chemicals used to treat the wafer and make the transistors cost money. From wafers, to the fab equipment, to the testing, to the packaging this all costs money. When the fabs have (had) the AMD sign on them that costs could be accounted for per wafer, say it cost them 16K per wafer to make 400 CPUs on a wafer (just as an example), it will cost the Foundry 16K per wafer to make those same CPUs -- we shall assume for the moment, and this is true near term, that AMD is the Foundries only customer.

The cost structure therefore is the same, except now AMD pays someone else 16K + some margin for the same wafer -- this is under the assumption that the Foundry does in fact want to make a profit. AMD will show this not as capex costs, but as cost of sales, this is why AMD states gross margins will fall to 30% or so. Overall, this is not a win for AMD since either they will pay more for the same wafer produced by the Foundry Co. or the Foundry Co. will eat the costs themselves, consequently they will show massive losses which in turn AMD will carry on the consolidated reports -- i.e. nothing much really changes in the immediate future.

The second item, and this is where it gets good for AMD, is when the Foundry Co. does bring in more customers other than AMD. In that case the Foundry Co can load the fab to full utilization, and as such the total capex costs are spread over thousands of wafers, AMD may take up 60% of that capacity, and a few other companies the remaining 40% as such the cost per wafer drops for the Foundry and the cost per wafer + margin sold to AMD also drops. Here AMD saves money, but this only happens if the Foundry Co. can dilute the costs over several customers by keeping the factory as fully utilized as possible.

In the end, only time will tell if this will work for AMD, and it is a risky move because the foundry business is very competitive. The Foundry Co. will be competing with TSMC, UMC, IBM, Chartered (to name a few). They need other customers using the fab in order to dilute the costs overall to a broader base. This split only works if the semicondutor industry is healthy and the capacity is utiized. So the logic is sound, but it carries with it a certain amount of risk -- if they cannot get the customers some one will lose money either AMD or the Foundry. Luckily, the new owners have deep pockets so they can continue to finance the operation for a long time. How much they are willing to sink into the operation (if it indeed is losing money) is another question without an answer.

RE: Was the ATI move really bad?
By Penti on 2/28/2009 10:18:15 PM , Rating: 3
I think your forgetting that the old factories wasn't incorporated in the same corporation as AMD Inc as they where there own corporations back then too just that AMD was the parent company and therefore design and fab people worked for the same companies even if that was AMD Germany. Design people will still sit in the same offices next to the fabs though. The real benefit from it is that it brought in capital, capital that AMD itself couldn't bring in. CSM already has foundries with AMDs tech (APM etcetera). AMD itself should also have a easier time bringing in investments and capital for design and product development now.

So it shouldn't really be a problem to have other customers. Not sure who that would be yet though, chipsets and GPUs are still made by TSMC. Foundry company would still work with others foundry companies like before, already mentioned CSM, and there's IBM too. They won't stop working together just because they become a foundry, they still need to license tech between each other, develop technologies and cooperate. They just wouldn't be competitive any of them if they didn't. And they get paid for doing all that work for each other any how.

He may want another quote change.
By Mr Perfect on 2/27/2009 12:46:45 PM , Rating: 2
If ‘Smart men have foundries’, and you haven't got any...

By tshen83 on 3/2/2009 11:03:51 AM , Rating: 1
lol. This is like Dirk Meyer saying AMD people are dumb men since they no longer own a foundry :)

I actually like Dirk Meyer. It would take a miracle to pull AMD out of the shithole Ruiz created for him.

In a few years, when Hector Ruiz the focker runs the foundry spinoff down to the ground, even Smart men won't have access to foundries. :(

A few more AMD details
By maverick85wd on 2/28/2009 3:09:31 PM , Rating: 2

Got the link from Engadget.... quite a bit more in depth about what AMD is up to.

I like DT and don't mind, like some readers, that they don't go into more detail in their articles; I like reading and just getting an idea of what's going on, and if I want to know more I research it (and read the comments, if with a grain of salt). This article, however, is PRETTY bare.

The "smart men have foundires" vs. "real men have fabs" bit was real nice, I guess.

"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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