Where AMD's New CEO Is Heading

With a fresh playbook, AMD's Dirk Meyer is shedding costly chipmaking operations to focus on semiconductor design, restoring profits, and beating giant Intel

By Arik Hesseldahl

You might say Dirk Meyer just had a great big weight lifted off his shoulders but still has another to bear. As the new CEO of chipmaker Advanced Micro Devices (AMD), he has taken the helm of the company just as it has closed a complex spin-off of its manufacturing assets into a new company called Globalfoundries. The deal is the second major change to AMD in recent years. In 2006 it paid $5.4 billion to acquire the Canadian PC graphics chipmaker ATI Technologies, an acquisition that proved ill-timed. AMD ultimately wrote down the value of ATI’s assets by half.

While AMD's chips have at various times been competitive—and occasionally superior—to those of its chief rival, Intel (INTC), the company has always struggled with the costs associated with building and operating multibillion-dollar chip factories, known in the industry as "fabs." Last year it lost $1.95 billion on sales of $5.8 billion.

The new Globalfoundries, to be half-owned by AMD and Abu Dhabi's Advanced Technology Investment, will build AMD's chips under contract but also will seek chip manufacturing business from other companies. There are already several so-called chip foundries, among them Taiwan Semiconductor Manufacturing (TSM), United Microelectronics (UMC), Singapore's Chartered Semiconductor Manufacturing (CHRT), and even IBM (IBM).

Now that the crushing capital expense of manufacturing is off AMD's books, Meyer still has a big job ahead of him: taking on Intel, one of the most powerful companies in technology. He sat down with BusinessWeek's Arik Hesseldahl to discuss the state of the microprocessor market, the PC industry, and AMD's new structure.

Dirk, the biggest change with this new structure, at least looking from the outside, is that AMD won't be in full control of its factories. How is this new operating structure going to be different in an operational sense from what you've been doing all these years?

On the margin I would say it's a little different, but really it's not all that different. We're still going to have to provide Globalfoundries with good forecasts. And we're its only customer coming in and will be its biggest customer for quite a long time, so they're going to be very motivated to give us what we need.

Are there likely to be any other customers coming in?

They've got a lot of good discussions going on. One of the ideas behind this deal is that since R&D and [capital expenditures] have been growing faster than industry growth rates, you're seeing product companies that aren’t able to scale for manufacturing. Therefore the manufacturing base of the industry is consolidating around companies that do have the scale, and most of those companies have turned out to be foundries. So we observed that when you look at the foundry players today, you've got TSMC [Taiwan Semiconductor Manufacturing], which is the only one with technology at the leading edge and a strong balance sheet. The rest of them frankly have neither. We saw two things: First, among the companies looking to hire a foundry today, they're looking for an answer other than TSMC. Second, we saw an industry that was increasingly going fabless. So for both of those reasons, we saw an opportunity to start a foundry company.