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It's been about two years since Advanced Micro Devices started talking about what it called an "asset smart" strategy for organizing its manufacturing assets in a more financially sustainable way. As one of two vertically integrated x86 microprocessor makers along with larger rival Intel, AMD had many in the industry wondering just how far it would go in lightening its cost-intensive manufacturing load.
Last summer, new CEO Dirk Meyer and his team pulled the trigger, sealing a deal to spin off AMD's silicon fabrication operations to Advanced Technology Investment Co., an investment company owned by the government of Abu Dhabi in the United Arab Emirates. The move to form the new entity, called The Foundry Company, was approved by AMD shareholders this month. AMD will own about 35 percent of The Foundry Company. That stake is down from the 45 percent that was originally intended when the deal was struck, due to AMD's continued financial problems and falling share price.
Meyer spoke with Channelweb.com Friday about the spin-off and its implications for AMD's system builder channel. He also touched upon the way forward in a tough market for AMD as a fabless design and marketing house and for The Foundry Company as a semiconductor manufacturer with one very loyal customer, hoping to have more.
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| Dirk Meyer |
So congratulations on the result from your shareholders. Clearly this is something AMD has wanted to do and has planned to do for a long time. But at the risk of going for the joke to start off, what does this all mean in terms of AMD founder Jerry Sanders' famous quote, "Real men have fabs?"
Jerry was speaking at a particular point in time, in the context of being at the start of the semiconductor business in Silicon Valley. But times have changed. The capital expenditures for manufacturing have grown. You are seeing semiconductor companies that used to have fabs start to have foundries and that's only going to accelerate. The formation of The Foundry Company does two things -- one is that we're creating a very technologically capable company and also that it's a financially sound company.
We are already seeing some of our fabless semi partners react very positively to The Foundry Company. Going back to Jerry Sanders, I like to say now that, "Smart men have foundries."
If you own an equity interest in The Foundry Company of about 35 percent, what are your obligations as a public company to report Foundry Company financials or your stake of those financials? And how fast does this all happen?
Our CFO Bob Rivet will be hosting a Webcast next week to explain this more fully to financial analysts. But first of all, AMD will become a product, design and marketing focused company. The company that I manage will become that. It's true that AMD will own a stake in The Foundry Company at the share you stated. And for a period of time we will be obligated to consolidate Foundry Company financials on the AMD balance sheet and P&L statement. For a while, we will be their only customer. But as The Foundry Company grows and gets other customers, we will no longer have to do that. We will have two separate management teams. In terms of cash flows, ours will be used to support product development needs and to procure materials from The Foundry Company, and theirs will be put toward manufacturing and process technology.
What does the spin-off mean in terms of process technology and how quickly The Foundry Company follows the industry leader, whether Intel or some other company?
To give you some history perspective, we have lagged by six to 12 months behind whoever's in front on process technology. In recent years, that's been Intel. The reason for that is twofold, in that it has to do with both scaling concerns and business strategy. It's extremely expensive to ramp the next node and the tools to do so, and it doesn't make sense for us to be line-on-line with Intel in that regard. So we generally start to ramp a new technology when it's more mature. From a manufacturing cost perspective, that's been a good thing for us. And architecturally, we've still been able to be competitive in the market.
But that could change somewhat as The Foundry Company scales, as financial considerations start to change, as they become more economically able to move more aggressively and start to get copies of the latest tools from the leaders sooner, and they could have an opportunity to close that gap.
What does this all mean for your channel?
The headline is that this transaction allows AMD to do two things -- to transform our business model to both a more sustainable and a more focused company. That's beneficial to our channel, too. One thing we're doing is increasing our focus on the channel, and we're committed to our mission to provide our channel partners with the ability to procure and market our platforms. The thing is, ATI had a channel organization and AMD has a channel organization, but it's been tough [since the ATI acquisition] to bring together the channel message we have about integrating the GPU and the CPU most effectively. We're doubling down on that message and that commitment.
Next: Gearing Up For The Future
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