- Tuesday, 9 February 2010
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It is easier to fight for one's principles than to live up to them - Alfred Adler
AMD spin-off... good, bad or ugly?
IN A DEAL thought by many to be an inevitability for some time, AMD finally split in half yesterday into a chip design company and a (or The) Foundry Company.
Both firms also received significant cash injections from the Middle East. Abu Dhabi-owned investment firm, Mubadala, increased its stake in AMD from 8.1 per cent to 19.3 per cent, whilst another investment arm of the Abu Dhabi emirate, ATIC (Advanced Technology Investment Company) snapped up 56 per cent of The Foundry Co.
Financial analysts rejoiced whilst others admitted that AMD had made the best of a bad situation, facing its economic predicament.
"AMD couldn’t continue to carry the debt and invest load it had with its sales where they were”, noted Jon Peddie. Nathan Brookwood of Insight 64 concurred adding, “this move clears up a major question that has been hanging over AMD’s head for two years – where will they find the cash to finish the upgrade of Fab 38, and the construction of the fab in NY state. They’ve accomplished this in a manner that doesn’t dilute the equity of AMD’s current shareholders, which is really a plus from the Wall Street perspective.”
But separating the low-capital, high-margin chip design part of the company from the high-capital, low-margin manufacturing part of the business which actually makes the chips doesn’t sound like such a smart idea to everyone. Sure, financially it makes sense, but as an industry insider working at a rival chip firm told us, “it is actually very difficult to develop new features if design and manufacturing aren’t under the same roof”.
And whilst The Foundry Company may well start off calling AMD its “number one customer”, once the honeymoon is over, it will be interesting to see how keen the new manufacturing firm is to pander to AMD’s every need if other customers are willing to pay for its services too.
At the end of the day, it all boils down to QPL, and if The Foundry Co is going to succeed, it may well come at the expense of its loyalty to its surgically-removed Siamese twin.
The whole separation between ‘church and state’, may not be the only foreseeable bump in the road resulting from the move. The camel connection also poses a fair few questions.
Sure, some industry tech-sperts don’t seem to find it strange that small, oil-rich kingdoms in the Middle East are suddenly getting a taste for chips, but others feel less comfortable with the situation.
“There’s definitely some national security issues there”, noted David Kanter from Real World Tech, who added it could end up giving “somewhat less certain allies of the United States” an economic competitive advantage. This could also cause the US to tightly clamp down on AMD exports. On the subject of AMD's very rich foreign overlords, one can also ponder what particular technology insight the great and eminent leaders of the Emirates could impart to The Foundry Co. We can almost see the memos now: "His Royal Chipmaking Highness thinks we should move to a 12nm process…"
So will AMD manage to pull it together and avoid a public beheading? Well, as a media-shy industry source told us, “AMD is just like Glenn Close at the end of Fatal Attraction... where she just won't die!"
If AMD can manage to come up with brilliant, competitive designs, which The Foundry Co. manages to build exactly to spec and totally in synch with AMDs expectations for a good price, then things should be fine.
But if the current state of economic crisis continues and The Foundry Co starts floundering in its attempts to pull in more capital for continuing to build better, more advanced fabs, AMD might find itself in a bit of a pita… er… pickle. µ
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I just wonder what Jerry has to say about all this? After all, only real men have fabs.
..of AMD as a bunni boiler. Hard to shake once planted in my tender little brain, darnit :-)

(great article thobut)
Frankly its a great thing, truly fantastic and especially in this time of banks failing and huge loans being non existant. AMD did great, but when they did so well they got into murky waters. once they hit around 20% of the chip sales figure two things happened, they had the best chip and everyone wanted them. They had two choices expand their consumer base and make more deals, or shy away from big contracts and stay a small business for a long time getting rid of debts before making a concerted push for more business. The trouble lies with their chips, if they still had the best chips there would still be demand, they couldn't guarentee that with Intel and billions free to pump into R&D.

So they went the first route, took advantage while the iron was hot and got deals with Dell and other people. The downside of this was the chips they were contractually obliged to produce rose, which gave them significant manufacturing problems and moving to a new process the downtime with so few fabs wasn't possible, compared to Intel who can shut down 2 of their 42 fabs swap them over and get back going with little harm to their numbers.

In other words, they need more fabs, they need investment and they need to be not crippled by lack of supply. The New York fab is all ready to go but funding seemed it wasn't, now they can easily afford to build it, get an extra fab, have far less issues from 65 >45nm than they did 90>65nm(well maybe less problems on the process change after that).

It might well enable them to build a fab/have extra capacity to produce much of their ATi line of cards aswell, saving on outsourcing and not being hampered by things like waiting for the 40nm process at outside fabs to be ready like they are stuck now.

Even in today's climate the key for AMD was expansion and that was always going to cost them in the short term and hopefully pay off in the long term, this move will only help them in those goals. They might be giving up part of the company, but its better to make 40% profits of a 5billion a year company, than 80% profits off a struggling 1billion a year company isn't it ;)
I like how security is brought up since coincidentally haliburton's main HQ moved to Dubai and last i heard they managed the majority of US military tech aside from main companies like Lockheed martin and so on. Get with the times. Israel's got a great foundry/fab set its not that bad that others around it are alil jealous and decided to get on board.
AMD has 50% of the votes in the new company even if they only own 44.4%.
As for national security risks after seeing how many politicians took part at yesterday's press conference in NY about the new fab i doubt getting aprouval for the deal will be a problem
Suck IT and See, would appear to be the best course of action for it is most unlikely that Allah will allow anything at all untoward. And as alcohol is not used and/or abused for its brain pickling properties in the Middle East [except clandestinely by nomad Westerners, that is] you don't get the psychopathic delusional God Complex favoured by Bowery Bums and Cokeheads .... http://www.timesonline.co.uk/tol/news/world/us_and_americas/article3225636.ece and the Manic Serial Fabricator, whose handler professes they one doesn't do God.

Which spookily enough might mean that one can ..... but probably only in Creation for Destruction has ITs own Special Personal Reward.
Other than cash injection - what really has changed. Have the chip design roadmaps changed? Has the manufacturing cost changed? Will the manufacturing capacity in the next 18 months change?

AMD has now injected foundry margin into the price of their chips so unless the new foundry has figured out a way to make chips cheaper by changing the name on the door, AMD's margins will do down (as they hinted at in an analyst meeting a while back when asked about Asset Smart) or prices will go up to compensate for the additional foundry margin.

Long term things may change with economies of scale but NY is a late 2011/2012 revenue start and F30 will help a bit in 2009 but for the next 18 months nothing significantly changes.

Unless folks believe the middle east investors know how to manufacture chips cheaper, the production cost will be the same and now you get to tack both AMD and foundry margins (instead of just the AMD margin in the past).

And the fundamental problem with ownership of the foundry is that AMD owns 44.4% NOW. With the middle east investors prepared to pump in 3.6-6.4Bil over time what happens to AMD's equity stake (you really think they are going to match those investments). You really think if the equity stake drops under 30%, they will continue to retain 50% voting rights?
Oh, How time Flys, it was just 4 decades ago Ms. barton introduced Me to Patty Gerstner, Patty Was Kisser & term "Camel Spit" applies so well.

Gerstners where in direct competition with von Drashek in Europe. before Big War.Of Course those Factories are rubble Now.

On Sylvia, someone mentioned, like Patty & Lynn, that jewish Faith is pertainent. Yet with last name of Barack, its seems little More Obvious.

Personally, I'm Physician, so what heck. Its StrawberryPie Day, WorldWide.

Victories Center.
drashek.

About haliburton: I thought they did mostly oil/chemicals, and for the US troops in iraq (food) supplies and such.
And since they are so shifty it's no wonder they would end up in dubai, the place known as the 'anything-goes-no-questions-asked business capital of the world' if I'm not mistaken.
I'm not really convinced this was a good idea. Part of what seems to give Intel such an advantage sometimes is a significant process lead on most competitors. A tight integration of the fab with the design should make the pipeline shorter as I understand it. As far as I see this could only make things worse, putting AMD on even footing with all the other scavengers depending on the likes of the TSMC.
"Unless folks believe the middle east investors know how to manufacture chips cheaper, the production cost will be the same ..." ... posted by : joe, 08 October 2008 

joe,

The Game Changing move is not about manufacturing chips cheaper, it is in their design being Altogether Different and therefore their BIOS Configuration delivering an Enriched Product ........ which is a Bare Bones Simplification, of course, but Entirely Accurate nevertheless. 

And the Altogether Different dDevelopment is Perfectly Consistent with the Quantum Computing Model in which the QuBit is both 0 and 1 whilst also being neither and each.
Looks like AMD will live another day. That is good for the industry. Too bad Hector the wrecker got them into this position by BURNING all AMDs $ on ATI. The FABs where the only thing AMD could sell and they did. I wonder how long it will take for Intel to sue AMD and the new company over the patent license issues.
but your still pretty impressive. i just been reading your back post via your aggregation blog and i find your views really useful so I just wanted to say thanks. I now have an RSS feed of your blog running into LJ so i can keep up on your ideas
thankyou again
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