Business

AMD Divides Operations to Conquer Intel

Advanced Micro Devices is splitting into two companies with the help of a massive cash infusion by investors in the United Arab Emirates capital Abu Dhabi.

AMD will continue designing semiconductor chips for computers and servers. The spinoff, called “The Foundry Company,” will focus on manufacturing semiconductor chips.

The corporate split will be financed with US$6 billion in capital from Advanced Technology Investment Company, which is owned by the government of Abu Dhabi. Sunnyvale, Calif.-based AMD will own 44.1 percent of Foundry.

Also, the Mubadala Development Company, another Abu Dhabi-based firm, will acquire 58 million newly issued AMD shares for $314 million, giving it a 19.8 percent stake in AMD.

In November 2007, Mubadala bought an 8 percent stake in AMD.

AMD’s move is a clear attempt to challenge Santa Clara, Calif.-based chip giant Intel, which has held a dominant position in the semiconductor chip market for many years.

The deal is expected to close in early 2009.

Massive Capital

The semiconductor business is not cheap. It takes billions of dollars to build the fabless semiconductor plants — also known as “fabs” — needed to manufacture advanced microprocessors. AMD has two such plants in Dresden, Germany, and the new cash will go toward constructing a third state-of-the-art fab near Albany, N.Y. All three facilities will be operated by Foundry.

“The amount of capital [the Abu Dhabi investors] were willing to commit is more than anyone expected,” Doug Freedman, an equity analyst with American Technology Research, told the E-Commerce Times. “Clearly, it’s a big benefit. [AMD] is in a race for processing technology that a lot of people thought they wouldn’t be able to fund going forward. As a result of this deal, they’ll have access to be the best processing technology money can buy.”

A Changed Landscape

Though still the undisputed king of the semiconductor market, Intel could now face its first serious challenger in years with a newly cash-rich AMD and Foundry.

“Intel wants to tell you there is no way AMD can compete with them,” Freedman said. “Now, for at least the next three-to-five years, AMD will have access to the best microprocessing technology out there.”

One of the potential benefits of the cash infusion could be AMD’s ability to lure top-notch chip engineers to come work in its new fab plant in Albany.

“The derivative of the investment is they can attract engineers who want to work on leading processor technology,” Freedman said. “Guys want to work where people are spending money.”

As part of the deal, Foundry will also manufacture semiconductor chips for other companies on a contract basis, while still devoting a great deal of its efforts to AMD’s business.

“The investments required to maintain manufacturing facilities are so high that more and more companies are turning to foundries and other fabless companies to make their chips,” Drew Prairie, an AMD spokesperson, told the E-Commerce Times.

“There’s a need for more foundry capacity,” he said. “We’re partnering to create a new company that’s going to provide a whole other level of choice to the industry by having a contract semiconductor manufacturing capacity.”

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

E-Commerce Times Channels