AMD, GlobalFoundries Amend Wafer Supply Deal
By Mark LaPedus, SemiMD senior editor
Advanced Micro Devices Inc. (AMD) has amended its wafer supply agreement with GlobalFoundries Inc., and also transferred its remaining shares to the silicon foundry vendor.
As part of the deal, GlobalFoundries waived the exclusivity arrangement for AMD to manufacture certain 28nm accelerated processing unit (APU) products at GlobalFoundries for a specified period. AMD said it will have some of its 28nm devices made on a foundry basis at Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC)
As a result, AMD agreed to pay GlobalFoundries a cash payment of $425 million, of which $150 million is being paid on March 5, 2012, $50 million will be paid by July 2, 2012, $50 million by Oct. 2, 2012 and $175 million in the first quarter of 2013. In addition, AMD issued a promissory note to the foundry vendor for the payments due by Oct. 2, 2012 and first quarter 2013.
During a conference call to explain the deal, Thomas Seifert, senior vice president and chief financial officer at AMD, said AMD still expects to pay GlobalFoundries approximately $1.5 billion for wafers in 2012 despite the amended agreement.
For 28nm production, AMD expects to use “both foundries” in TSMC and GlobalFoundries, Seifert said, without elaborating. The new deal “enables a pricing strategy that more closely aligns to our business case,” he said during the call. This “allows for 28nm production flexibility to best execute to our roadmap.”
In addition, AMD and GlobalFoundries agreed to a negotiated wafer price mechanism for 2012. AMD also agreed to transfer its remaining ownership interest in GlobalFoundries to the foundry vendor. As a result, AMD will no longer hold an equity stake in the foundry vendor. GlobalFoundries will now be wholly owned by the Advanced Technology Investment Company (ATIC) of Abu Dhabi.
In 2009, AMD spun off its manufacturing unit and formed a joint foundry venture with ATIC. ATIC, now a subsidiary of the Mubadala Development Co. of Abu Dhabi, had owned more than 80 percent of GlobalFoundries. Now, it owns the entire stake in the foundry.
Meanwhile, AMD and GlobalFoundries established a wafer price mechanism with negotiated prices based on a take or pay arrangement in 2012, established a framework for wafer pricing in 2013, and agreed that AMD’s additional 2012 quarterly payment obligations specified in the 2011 amendment will be waived.
AMD expects to record a one-time charge of $703 million in Q1 2012 consisting of the $425 million cash payment and the remainder will be a non-cash charge. AMD’s Q1 2012 non-GAAP gross margin guidance of approximately 45 percent and the 2012 non-GAAP gross margin guidance of 44 percent to 48 percent remain unchanged.
AMD and GlobalFoundries have had a wafer supply agreement in place since March 2009. On April 1, 2011, AMD announced an amendment to the WSA.
As part of the older deal, AMD paid GlobalFoundries a fixed price for 45nm wafers delivered in 2011. AMD also paid GlobalFoundries for good 32nm die that met predetermined specifications. AMD also made an additional quarterly payment obligation to GlobalFoundries during 2012 if GlobalFoundries met specified conditions related to continued availability of 32nm capacity in 2012.
In the previous agreement, AMD was to resume compensating GlobalFoundries on a cost-plus basis to manufacture wafers for its MPU and APU products in 2012, then expected to pay GlobalFoundries between and $1.5 billion to $1.9 billion in 2012 for wafer purchases.
Now, the companies have a new wafer supply deal. “The amended wafer supply agreement demonstrates that AMD and GlobalFoundries remain committed as long-term strategic business partners,” said Rory Read, chief executive officer of AMD. “We made significant progress last year to strengthen our relationship, and we’re pleased with GlobalFoundries’ recent performance in meeting our delivery requirements across our product line.”
New era
Analysts applauded the new wafer agreement. “With more 32nm wafer supply coming on in 1Q12, and with AMD now seemingly able to pursue 28nm capacity aggressively at TSMC, AMD’s financial metrics could improve substantially in 2012,” said Craig Berger, an analyst with FBR.
C.J. Muse, an analyst with Barclays Capital, said: “In step with the ongoing strategic changes, AMD announced the complete exit of manufacturing by transferring all of its remaining ownership interest in GF and moving to a fabless model where we think TSMC will play a larger role in manufacturing. While we view access to TSMC as a longer-term positive, the price doesn’t come cheap.”
This also changes the AMD-GlobalFoundries relationship from a “good die” to “take or pay”model. ”Move from ‘good die’ to ‘take or pay’ suggests yields at GF have matured though highlights a compromise AMD needed to make in order to get the deal done,” Muse said. “AMD now has access to TSMC at 28nm, alleviating execution risk.”
“Today marks the start of a new era for GlobalFoundries as it becomes a truly independent foundry,” said GlobalFoundries CEO Ajit Manocha. “GlobalFoundries has a clear vision to be the leading semiconductor foundry partner to AMD and one of the world’s top technology companies. We continue to execute on our strategy to propel ATIC’s long-term investment philosophy into true value creation for our shareholder and customers.”
This acquisition of shares is the latest in a series of announcements marking significant milestones at the foundry. Thanks to GlobalFoundries, AMD’s 32nm processor shipments increased by more than 80 percent from the third quarter to the fourth quarter and now represent a third of AMD’s overall processor mix.
In January, the company announced plans for more than $3 billion in capital spending in 2012 to fund expansion of its facilities in Singapore, Germany and New York. Also in January, the company announced that its newest 300mm manufacturing facility, Fab 8 in New York, started running the first silicon as part of a new customer agreement to develop leading-edge chips for IBM.
Tags: AMD, GlobalFoundries