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Official: AMD goes fabless

07 October 2008 | By Mark Osborne | News > Fab Management

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AMD sells majority share in Dresden fabsIt may have taken Hector Ruiz over a year to put together what many have done in lesser time, but AMD has finally sold-off its fabs (with a 44.4 percent share) to its friends in Abu Dhabi and gone fabless in all but name.

A few key points:

Hector will leave AMD for the new foundry being created.
AMD issues millions more shares
Luther Forest 300mm fab to go ahead under new company
New company called ‘The Foundry Company’…oh dear! 

A press conference will be held later today so there will be more from me after that, but for now here is the press release AMD issued today.

…….AMD and Advanced Technology Investment Company of Abu Dhabi to Create New Leading-Edge Semiconductor Manufacturing Company


Mubadala increases investment in financially-stronger AMD, which is simultaneously unlocking the value of its manufacturing assets


— “The Foundry Company” to build new state-of-the-art manufacturing facility in Upstate New York, creating more than 1,400 jobs, and to expand existing manufacturing facility in Dresden —

— IBM welcomes The Foundry Company into the IBM Alliance —

 

        NEW YORK— Oct. 7, 2008 — AMD [NYSE: AMD] and the Advanced Technology Investment Company (ATIC) of Abu Dhabi today announced the creation of a U.S.-headquartered, leading-edge semiconductor manufacturing company to address growing demand for independent, leading-edge foundry production capabilities.  The new global company, to be temporarily called “The Foundry Company”, will serve this need by combining advanced process technology, industry-leading manufacturing facilities and aggressive plans to expand its global capacity footprint.  At the same time, the Mubadala Development Company will increase its current investment in AMD to 19.3 percent on a fully diluted basis.

AMD will contribute to The Foundry Company its manufacturing facilities, including two fabrication facilities in Dresden, Germany, as well as related assets and intellectual property rights.  ATIC will invest $2.1 billion to purchase its stake in The Foundry Company, of which it will invest $1.4 billion directly in the new entity and the remainder will be paid to AMD to purchase additional shares in The Foundry Company.  The Foundry Company will also assume approximately $1.2 billion of AMD’s existing debt.  ATIC has committed additional equity funding to The Foundry Company of a minimum of $3.6 billion and up to $6.0 billion over the next five years to fund the expansion of The Foundry Company’s chip-making capacity beyond the manufacturing facilities initially contributed by AMD.  These funds will be used by The Foundry Company to (i) proceed with capacity expansion at its fabs in Dresden, Germany, including an upgrade of one of its fabs to a state-of-the-art facility, and (ii) begin construction on a new state-of-the-art facility in Saratoga County, New York, subject to the transfer of previously-approved New York State incentives.  The New York facility is expected to create more than 1,400 direct jobs, and, through its operation, to generate an additional 5,000 jobs in the region. Once operational, the New York facility will be the only independently-managed, leading-edge semiconductor manufacturing foundry in the United States.

Global demand for independent foundry manufacturing is growing because leading semiconductor companies are exiting manufacturing, as the cost and complexity increases and capital and research and development costs have become too high.  In addition, the world’s requirements for devices that use more advanced semiconductors continue to grow, and the IBM technology alliance, to which The Foundry Company will belong, creates an increasingly larger foundation for semiconductor innovation.

The Board of Directors of The Foundry Company will be equally divided between representatives of AMD and ATIC.  AMD will own 44.4 percent and ATIC will own 55.6 percent of The Foundry Company’s fully-converted common stock upon its formation.

Doug Grose will relinquish his current role as AMD’s senior vice president of manufacturing operations to become chief executive officer of The Foundry Company.  Hector Ruiz will relinquish his current role as AMD’s executive chairman and chairman of the board to become chairman of The Foundry Company.  To augment its announced leadership, the new company plans an aggressive recruitment strategy to round out a world-class semiconductor manufacturing leadership team. 

ATIC is an investment company formed by the government of Abu Dhabi to invest in advanced technology opportunities that require patient capital and long-term time horizons to achieve economic returns while also increasing the economic diversification of Abu Dhabi.  While it enhances its capabilities specific to the transaction, ATIC will enter into a 12-month agreement with Mubadala to project manage ATIC’s interest in The Foundry Company. 

As a result of the transactions, AMD will strengthen its financial position and focus on the design and development of innovative computing and graphics solutions.  AMD will improve its liquidity through The Foundry Company’s assumption of approximately $1.2 billion in debt, ATIC’s $700 million payment to AMD for ownership interests in The Foundry Company and Mubadala’s $314 million paid to AMD for 58 million newly issued AMD shares and warrants for 30 million additional shares.

Mubadala, an existing 8.1 percent AMD shareholder, will increase its stake to 19.3 percent of outstanding AMD shares on a fully diluted basis.  This will be accomplished through the purchase for $314 million of 58 million newly issued AMD shares and warrants for 30 million additional shares.  Mubadala will also have the right to appoint a designee to AMD’s board of directors.

 “Today is a landmark day for AMD, creating a financially stronger company with a tightened focus,” said Dirk Meyer, president and chief executive officer of AMD. “With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading-edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing. I particularly want to congratulate our Chairman Hector Ruiz, whose vision and leadership of our Asset Smart strategy is fulfilled today.”

“We are as enthusiastic about AMD’s potential today as we were when we made our initial investment last year,” said Khaldoon Al Mubarak, chief executive officer and managing director of Mubadala. “This increased investment is a strong vote of confidence in AMD’s Asset Smart business strategy, evolved leadership team, and best-in-class technology.”

“ATIC and AMD are the ideal partners with which to create The Foundry Company,” said Hector Ruiz, chairman of AMD’s board of directors, who will become chairman of The Foundry Company. “Working together allows us to combine ATIC’s long-term vision and patient capital with our manufacturing leadership, innovation and highly-skilled workforce. Moreover, The Foundry Company’s presence in Upstate New York alongside IBM and other research leaders will cement the region’s position as one of the world’s premier centers of nanotechnology development.”

ATIC Chairman Waleed Al Mokarrab said, “More than a year in the making, today’s announcement significantly reshapes the global semiconductor industry – it is an investment where all parties see significant opportunity.  Independent and well-capitalized, The Foundry Company begins day one with an established leading-edge customer, an advanced technology roadmap, an R&D partnership with IBM, and a clear plan to scale capacity, providing it the foundation to become a clear leader in global semiconductor manufacturing.”

“The creation of The Foundry Company represents a critical milestone in the evolution of the semiconductor industry,” said Doug Grose, who will be the CEO of The Foundry Company. "Companies are eager for choice in the supply of leading-edge manufacturing capacity, and our new venture is answering that call.   By combining operational excellence, leading-edge technology developed in collaboration with IBM, and an aggressive capacity roadmap, The Foundry Company aspires to drive the next round of innovation in this industry."

The Foundry Company will join the IBM joint development alliance for both silicon-on-insulator (SOI) and bulk silicon through the 22nm generation.  The alliance consists of a group of leading semiconductor companies collaborating on next generation silicon technologies.

"We welcome The Foundry Company into the IBM alliance and are pleased to see the company investing in New York,” said Dr. John E. Kelly III, senior vice president and director of Research at IBM. “The Foundry Company’s membership in the alliance brings new intellectual capital to our collaborative effort and continues to build on the momentum and leadership that the alliance has established in semiconductor technologies."

Upon closing of the transaction, The Foundry Company will commence operations with approximately 3,000 employees who will transition into the new company from AMD facilities in Silicon Valley, New York, Dresden, and Austin.  The new company’s principal headquarters will be in Silicon Valley and its research and development and manufacturing leadership teams and ecosystems will be based in New York, Dresden, and Austin.  After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi.

The transaction is expected to close at the beginning of 2009 following satisfaction of conditions such as approvals from regulators, transfer of previously-confirmed New York incentives to The Foundry Company, and the approval of AMD stockholders for the issuance of common stock and warrants to Mubadala. Prior to closing, AMD, ATIC and Mubadala will file a joint voluntary notice of the transaction for review by the Committee on Foreign Investment in the United States (CFIUS), a government inter-agency committee chaired by the Secretary of the Treasury. 

Upon closing, The Foundry Company will:

•       Have a total enterprise value of $5.0 billion, consisting of AMD's contribution of manufacturing assets and intellectual property (including its fabrication facilities in Dresden), intellectual capital and employees valued together at $2.4 billion; ATIC's contribution of $1.4 billion in new capital; and $1.2 billion of debt assumed by The Foundry Company from AMD;

•       Be consolidated with AMD for purposes of financial reporting;

•       Have a board of directors whose membership is equally divided between representatives of AMD and ATIC;

•       Have only AMD and ATIC as stockholders, each of which at the closing will have equal voting rights;

•       Be owned 44.4 percent by AMD and 55.6 percent by ATIC on a fully converted to common basis.  ATIC’s economic ownership will increase over time based on the differences in securities held by AMD and ATIC, and depending on whether AMD elects to invest proportionately with ATIC in future capital infusions to support The Foundry Company’s growth;

•       Have its principal headquarters in Silicon Valley, and its research and development and manufacturing leadership teams and ecosystems in New York, Dresden, and Austin;

•       Have an exclusive supply agreement with limited exceptions to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products;

•       Begin construction of the Fab 4X manufacturing facility in New York in the middle of 2009, directly employing more than 1,400 workers in Upstate New York when the facility is in full operation;

•       Expect to increase capacity through completing the 300mm conversion of a second state-of-the-art facility in Dresden in 2009;

•       Join the IBM technology development alliance for both SOI and bulk silicon technology, greatly expanding the addressable market of The Foundry Company;

•       After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi; and

•       Announce its permanent corporate name and identity.


Upon closing, AMD will:


•       Have equal voting rights with ATIC in The Foundry Company;

•       Own 44.4 percent of The Foundry Company on a fully converted to common basis;

•       Improve its liquidity through The Foundry Company’s assumption of approximately $1.2 billion of AMD’s debt, ATIC’s $700 million payment to AMD for ownership interests in The Foundry Company and Mubadala’s purchase for $314 million of 58 million newly issued AMD shares and warrants for 30 million additional shares;

•       Tightly focus on the design and development of the next generation of innovation based on the fusion of computing and graphics processing;

•       Elect a Mubadala designee as a member of its board of directors;

•       Excluding its consolidation of The Foundry Company for financial reporting purposes, improve its net cash position by $2.1 billion, through The Foundry Company’s assumption of approximately $1.1 billion in debt (net of approximately $100 million cash transferred by AMD to The Foundry Company) and cash payments from ATIC and Mubadala aggregating $1.0 billion;

•       Have the option, but not any requirement, to provide additional capital funding to The Foundry Company in response to future capital calls; and

•       Have an exclusive supply agreement with The Foundry Company, with limited exceptions, to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products. 


Upon closing, ATIC will:

•       Have equal voting rights with AMD in The Foundry Company;

•       Own 55.6 percent of The Foundry Company on a fully converted to common basis;

•       Invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD;

•       Commit a minimum of $3.6 billion and up to $6.0 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden and construction of a new facility in Upstate New York.

Upon closing, Mubadala will:

•       Purchase for an aggregate of $314 million 58 million newly issued AMD shares and warrants for 30 million additional shares, giving it a total stake in AMD of 19.3 percent on a fully diluted basis; and

•       Have a right to designate a representative for election as a member of the board of directors of AMD.

 

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Reader comments

AMD has finally done it. This is a huge transformation of the semiconductor industry. Will it work for AMD Fabless? And for AMD The Foundry Co? How will Intel respond to this new challenge? What does it mean for the end of Moore‚??s Law? These are just some of the strategic questions we need to start discussing. Good things first. AMD Fabless survives albeit stays loaded with significant debt (reduced by over $1.2B) and focused on competing with Intel. The new company, "The Company Foundry" joins IBM Alliance, and becomes the first logic IC foundry based in the US. Since foundries are the way of the future in microelectronics, this deal seems to put upstate NY on track to be part of the future of integrated microelectronics. It is also great news for the US since AMD will not be transferring core technology to TSMC (a foundry in Taiwan). Many things can go wrong, I thought of a few potential hurdles just minutes after listening to AMD‚??s online analysts' conference and Q&A: 1. AMD Design is loaded with debt. The United Arab Emirates investment companies might keep investing in AMD Design for a long time, however AMD Fabless will have to execute very well through this very difficult transformation. What is it going to be Intel's response to AMD‚??s move; a strategy that could potentially undercut Intel in price? AMD won't present a threat to Intel until 2010-2011. There will be intensified meetings in Santa Clara starting today, and make no mistake; Intel will respond in full force, they are the biggest, most competitive and most paranoid company ever in the microelectronics industry! 2. AMD The Foundry Co. has only one customer at this point (AMD), and the logic process design flow required for microprocessors is very unique. What happens if Intel does not license to other ‚??AMD like Co‚??s‚?? its bus technology and no other customers shows up for the Dresden Fabs or the NY Fab 4X? The Foundry Co. viability rests entirely on signing new customers very quickly, otherwise the potential cost advantage for AMD Fabless disappears, Intel wins big time and AMD is forced to seek shelter in TSMC foundries. 3. The Foundry Co. continues to commit to the Luther Forrest Plan, at this point ‚??re-confirmed. Had this deal being completed in May, and rushed through NYS legislature in June, it would have been a sure thing. Now, in October 2008, it is a very different story, the NY state faces its worst fiscal deficit ever, and the projection is that deficits will grow until... 2012? The question is if a very changed legislature will even consider supporting the project to create very expensive jobs in upstate NY while loosing jobs at an unprecedented rate in NYC? 4. Key to the future of Foundry Co Fab 4X in Malta, NY is Filling Fab Capacity. Still not clear how this is to be done, this is the natural state of certainty in the semiconductor business. IBM could sell their foundries to The Foundry Co. and transfer the gaming console chip business to this company; this could fill some additional capacity. The high-k process developed by the IBM Alliance is optimized for logic and low leakage, and it has been said costs as much as ~$10,000/wafer. However, TSMC claims it can keep attracting wireless IC business all the way to 28 nm at a lower cost ~$7,000/wafer using a process optimized for most of the time active (web phones); having perhaps higher leakage current. Wireless and gaming are needed for filling excess capacity in The Foundry Co, and this undefined capacity demand is the key to Luther Forrest Fab 4X which will happen if and only if: (1) AMD Fabless business at 32 nm is robust and (2) AMD The Foundry Co. can fill excess capacity at 32 nm with gaming and/or wireless chips. Price wars with Intel and TSMC might change both outlooks momentarily. 5. AMD Fabless has become a less risky investment; AMD The Foundry Co now carries most of the business risk. Austin, Silicon Valley and the PC industry have reasons to celebrate, AMD Fabless will survive. NY microelectronics future is now tied to the fortunes of The Foundry Company; and the future of the foundry company tied to its skill filling Fabs. The Foundry Co. constitutes a far riskier proposition, even if backed up by the Advanced Technology Investment Company (ATIC) of Abu Dhabi. Will The Foundry Co. present a serious challenge to TSMC‚??s dominance? IBM‚??s Fab Alliance has now a newly found source of strength. The Foundry Co. has no services and only one customer; and it is a very complex company to manage and operate. It is a huge global startup, burning capital at an amazing rate and with no revenue, depending entirely on the very deep pockets of ATIC. Investors should feel very uneasy owning stock of the combined company (AMD) in the short run, but even more uneasy owning stock of The Foundry Co in the long run. What an interesting time lies ahead for the future of the microelectronics industry in NY and the US!
By Adolfo Gutierrez on 07 October 2008

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