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With more money and an updated expansion plan, AMD hopes to catch up to Intel

On February 18th, Advanced Micro Devices held a special meeting of its shareholders to approve several financial transactions that would allow AMD to spin off its fabs into a joint venture with the Advanced Technology Investment Company (ATIC), wholly owned by the Emirate of Abu Dhabi.

AMD had been using "The Foundry Company" as a working title, and there was speculation that it would be adopted formally. Rumors of other names surfaced, such as AMD Foundry and Advanced Technology Foundries.

Instead, AMD has announced that the company will be known as "GLOBALFOUNDRIES". Official appearances of the name have shown it to be a single capitalized word. NVIDIA, the rival of AMD's graphics division ATI, also encourages the capitalization of its name in its marketing and press materials.

AMD received $700 million from ATIC as payment for its stake in GLOBALFOUNDRIES, which will assume approximately $1.1 billion of AMD's debt. This will enable AMD to regain profitability more quickly, as it will have to pay less interest on its crushing debt load. Its credit rating may also be upgraded, allowing access to capital that has been limited by the global credit crisis.

Paul Otellini, Intel's President and CEO, has publicly questioned AMD's future cost structure, with a prognosis that the "cost plus" contract between AMD and GLOBALFOUNDRIES will inevitably lead to a widening price/performance delta between the two CPU giants.

He stated: "The Mubadala guys will want a return on their investment", referring to Mubadala Development, a sovereign wealth fund also wholly owned by the Emirate of Abu Dhabi.

Mubadala currently owns 16.05% of AMD through its subsidiary West Coast Hitech (WCH), a Cayman Island based holding company. Mubadala paid AMD approximately $125 million for 58 million newly issued AMD shares and warrants for 35 million additional shares, with both transactions approved at the February shareholder meeting. If the warrants are fully exercised, Mubadala will own 142 million shares, accounting for 19.9% of AMD on a fully diluted basis, including outstanding stock options and restricted stock units.

Meanwhile, ATIC and AMD will each control 50% of GLOBALFOUNDRIES, but ATIC may see its ownership increase over time based on future capital infusions of up to $6 billion.

AMD's facilities in Dresden, Germany will be combined together into a new entity known as Fab 1. The fabrication plant formerly known as Fab 36 will be called Module 1, and will continue production of 45nm Silicon-on-Insulator (SOI) CPUs. Fab 38 will be known as Module 2, and will continue transitioning to 32nm bulk silicon with a targeted introduction in 2010.
ATI may use GLOBALFOUNDRIES 32nm bulk silicon process for its future DirectX 11 parts, but has no plans to discontinue production at its key technology partner TSMC (Taiwan Semiconductor Manufacturing Company). Instead, the ATI division will continue its policy of having dual-sourcing for suppliers where possible, as it still has agreements with UMC (United Microelectronics Corporation), another major foundry.

Fab 2 will be a new greenfield development built in the Luther Forest Technology Campus, located in Saratoga County, New York. The long delayed site was initially supposed to begin production on a 32nm SOI process, but will instead ramp up 22nm volume production in 2012.

The cost of construction and fabrication equipment at Fab 2 is expected to cost at least $4.2 billion, and was a key driver for the spin-off. Fab 2 will allow AMD to compete with Intel on future technologies, and was designed on the same principles as the Dresden site. It will be capable of expansion through additional production modules.

GLOBALFOUNDRIES expects 1400 new jobs will be created through direct employment at Fab 2, with more than 5000 jobs created indirectly throughout the region.

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i just hope it works
By inperfectdarkness on 3/5/2009 9:18:13 AM , Rating: 5
a non-competitive AMD means intel can be greedy with pricing; just like a non-competitive ATI means that NVIDIA can keep shelling out 2-year products with any number of "invented" product names--and not pay the piper for doing so.

i suspect that with proper management, AMD will be able to achieve performance parity with intel by the time these new fabs are complete. i say "performance" with respect to their manufacturing costs and the power consumption of their CPU's...not necessarily their processing power.

RE: i just hope it works
By ninjaquick on 3/5/2009 4:28:02 PM , Rating: 1
bcause their <1 year old tech is too big and clunky to streamline and make energy efficient.. wuuuut WUT??! Count it!

RE: i just hope it works
By Pryde on 3/5/2009 10:48:20 PM , Rating: 2
While Intel top of the line processors run $1000+ they have always had a great mid/low range product at a reasonable price ( and decent OC ) nor have they stopped releasing new processors rapidly. Intel had trouble with P4 just like AMD had troubles with Ph1.

AMD is the company of price gouging with the X2 and not releasing a new processor design. ( Ph1 a flop and took to long to reach market, Ph2 while good atm we have to wait and see how it will compete with i5. )

RE: i just hope it works
By iamezza on 3/6/2009 12:44:41 PM , Rating: 2
So do you think if AMD went bust that intel would still have "a great mid/low range product at a reasonable price"?

RE: i just hope it works
By Pryde on 3/6/2009 8:19:57 PM , Rating: 2
I don't think there would be an increase of price but instead we wouldn't see price cuts as often. We are moving away from pure performance and seeing more and more far cheaper but slower CPUs. 1.6Ghz Desktop Atom, Pair it with a 9400 IGP and you can pretty much do anything that the AVERAGE user ever needs. The Mid - High end is always going to come at a increased cost but it is the Low - Mid range that makes the profits ( in desktop area ) and increased cost will slow down people from upgrading which would hurt profits.

Intel has kept to a very similar pricing structure since the P3 days, OEMs, Servers etc would all have something to say about a drastic increase in price.

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