AMD Ships 32-nm Llano APUs, Changes Globalfoundries Supply Agreement

AMD has begun shipping its first 32-nm quad-core A-series Fusion chips for notebook and desktop platforms, code-named Llano, and on Monday the chipmaker amended its Wafer Supply Agreement with Globalfoundries in order to bolster its 32-nm products.

AMD said the primary purpose of the new agreement is to revise the pricing methodology for silicon wafers AMD received from Globalfoundries for use in AMD’s forthcoming microprocessing units (MPUs) and Fusion accelerated processing units (APUs) -- which combine a CPU, GPU and memory controller on a single die.

Under the amended agreement AMD will purchase a fixed number of 45-nm and 32-nm wafers from Gloubalfoundries each quarter in 2011, as well as an additional quarterly amount throughout 2012 that will be based on an incentive. AMD estimated that it will purchase wafers from Gloubalfoundries for about $1.1 to $1.5 billion in 2011 and $1.5 to $1.9 billion in 2012.

In a conference call on Monday, Thomas Seifert, chief financial officer and interim CEO at AMD, said Globalfoundries will need to meet specific targets with regard to 32nm availability beginning in 2012. ’We expect Globalfoundries will meet the conditions to earn these payments,’ Seifert said. ’We needed to work with Globalfoundries to develop a pricing strategy that better aligns to our business case.’

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In addition, Seifert said AMD wanted to ensure that Globalfoundries remains focused on the progress of its 32-nm fabrication and that the company offered an improved correlation between costs and its 32 nanometer RAM. ’And, not that I'm currently expecting any, we wanted to ensure better protection for AMD under lower than anticipated yield scenarios,’ Seifert said. ’The original discussion on this amendment was triggered last year when the 32 nanometer ramp looked a bit more challenging. From today's perspective it's rather more a downside protection.’

Seifert said that in addition to pricing methodology for MPU, the agreement has changed each side’s commitments with regard to GPUs and chipsets. ’Today AMD is leaner, more nimble and focused on continuing to achieve consistent profitability,’ Seifert said. ’And as we execute to this fabless strategy we are fortunate to have as astute, committed and strategic partners in ATIC, Globalfoundries and TSMC.’

Next: AMD Launches Llano

AMD says it is purchasing 45-nm wafers delivered in 2011 from Globalfoundries for a fixed price. However, AMD said the price it pays Globalfoundries for products based on a 32-nm process is determined by the quality of the die as AMD on Monday began shipping its 32-nm Llano APUs.

’Today 32-nanometer yields are in line with our expectations,’ Seifert said. ’Llano is now shipping is now shipping for revenue. Customers are very excited about Llano coming to market and we will look forward to seeing our ’Llano’-based systems in the market this quarter -- the second quarter.’

In an AMD blog post on Monday, an AMD spokesperson wrote that AMD’s APU units in production are for processors featured in systems that OEMs will ship to retailers or end-customers. The post also includes a video demonstration of Llano running compared to an Intel Core i7 Sandy Bridge processor.

Llano comes with four x86 CPU cores and a DirectX 11-capable GPU, according to AMD, and is primarily intended for high-end and mainstream notebooks as well as mainstream desktops.

As AMD continues to ship more APU products, AMD said in 2012 it will resume buying MPUs and APUs from Globalfoundries on a cost-plus basis. ’We currently expect to pay Globalfoundries the additional payment of no more than approximately $400 million in 2012 with a caveat that is dependent on a number of assumptions including certain yields and expectations regarding demand for our product,’ Seifert said. ’In 2012 and beyond we expect our purchases from Globalfoundries will continue to be material and bound by the terms of the WSA.’

Next: Plans For A Plant

AMD said last year it paid Globalfoundries approximately $1.2 billion for its wafers and began accounting for its investment in Globalfoundries under the ’cost method’ in Q1 of this year. ’This guidance is based on our expectations regarding improved profitability via our fabless model driven by our emphasis on IP development and leverage, disciplined capital investments, and tightly managed costs,’ Seifert said.

AMD spun off its manufacturing operations in 2009, and in March the newly-named spin-off Globalfoundries began construction on a $4.2 billion semiconductor fabrication plant for 32-nm microprocessors. The new plant was designated Fab 2, joining the Globalfoundries’ Fab 1 facility in Dresden, Germany. However, in July 2009 AMD and Globalfoundries again unveiled plans for Fab 2, saying it is scheduled to be completed and producing microprocessors by 2012 and is expected to create 6,400 new jobs. However, this time Globalfoundries said its new fab was intended to produce 28-nm and 22-nm products.