AMD Says Globalfoundries Revision Gives Downside Protection
April 04, 2011, 4:18 PM EDTBy Ian King
(Updates share price in last paragraph.)
April 4 (Bloomberg) -- Advanced Micro Devices Inc., the second-largest maker of personal-computer processors, said changes to a supply agreement with Globalfoundries Inc. are designed to protect it if there are more production delays.
The companies yesterday announced changes in an agreement covering chips made this year with the latest technology -- so- called 32 nanometer -- specifying that Sunnyvale, California- based AMD only pay for working chips.
“The discussion was triggered last year when the 32- nanometer ramp was a bit more challenging,” said interim Chief Executive Officer Thomas Seifert on a conference call. “From today’s perspective, it’s rather a downside protection.”
While Globalfoundries has now improved its output to meet AMD’s targets, the two went ahead with the revised agreement to provide an incentive for Globalfoundries to continue to make improvements, Seifert said. The arrangement also compensates AMD for shortfalls in production last year and makes Globalfoundries seem more attractive to other prospective customers, Joanne Feeney, an analyst at Longbow Research, said in a report.
Separately, AMD’s new Llano chip is now being shipped to paying customers, he said.
New Technology
The revision is intended to give Globalfoundries an incentive to improve production of 32-nanometer chips this year. Under their previous deal, AMD paid for all chips produced at cost plus a markup for Globalfoundries.
AMD estimates it will pay Globalfoundries $1.1 billion to $1.5 billion in 2011 and $1.5 billion to $1.9 billion in 2012 for outsourced manufacturing. That compares with about $1.2 billion in 2010.
The government of Abu Dhabi is AMD’s largest shareholder, with about a 16 percent stake. AMD is also the biggest customer of Globalfoundries, which Abu Dhabi created out of manufacturing operations it bought from AMD and Singapore’s Chartered Semiconductor Manufacturing Ltd. in 2009. AMD is now primarily a chip designer.
AMD fell 26 cents to $8.10 at 4 p.m. in New York Stock Exchange composite trading. The shares are little changed in value this year.
AMD ranks second to Intel Corp. in PC processor sales.
--Editors: Robin D. Schatz, John Lear
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net
