Advanced Micro Devices’ announcement that it is spinning out its chip fabrication operations to a new Abu Dhabi-financed company is good news for the future of competition in the processor and graphics chips businesses. AMD has a lot of advanced manufacturing technology, some of it courtesy of a technology sharing arrangement with IBM and a state-of-the-art chip fab in Dresden, Germany. But it could never come close to matching its much larger rival, Intel, in manufacturing efficiency. AMD was slowly, or not so slowly, being crushed by the capital cost and debt burden imposed by its manufacturing operations.
As industry analyst Roger Kay of Endpoint Technologies Associates notes: “AMD gets to lower its fixed costs, making it profitable at a lower level of revenue, and it can still participate in leading-edge technology development. It gets out from under some of its debt and receives a cash infusion from a patient source. The bonus: it gets to participate in an entirely new business, a foundry that takes in knitting from other fabless semi companies. AMD sweated this deal for a long time. It wanted to enter into, not just any partnership, but the right partnership. Certainly, Samsung and other large semi companies would have been happy to have a captive processor and graphics company in the stable, but AMD wanted to continue doing what it does best: developing computer innards. By moving in this direction, the company positions itself well in both its existing business and a whole new future business.”