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AMD spins off manufacturing biz

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AMD is splitting into two companies - one to design chips and one to carry out the debt-dependent business of actually making them.

Two Abu Dhabi investment firms will hand over at least $6bn to the two new firms and to build a new chip fab near Albany, New York and to refurbish one in Germany.

The chip-making business will be 44.4 per cent owned by AMD and is using the working title the Foundry Company. The rest of the firm will be owned by Advanced Technology Investment Company. ATIC was formed by the Abu Dhabi government and has equal voting rights with AMD.

The Foundry Company will make chips designed by AMD but will also manufacture for other companies.

The turnaround has been a long time coming and is needed for AMD to get back into competition with Intel. AMD has lost money for the last six quarters and has had to lay off staff. The number-two chip-maker is also carrying more than $5bn in debt.

AMD's chief executive Dirk Meyer told the New York Times: “This is the biggest announcement in our history. This will make us a financially stronger company, both in the near term and in the long term, as a result of being out from the capital expense burden we have had to bear.”

Building or upgrading a foundry requires huge amounts of cash, or more usually debt, and given the current credit crisis getting and maintaining such loans is increasingly expensive. Foundries depend not just on cheap debt but also generous handouts from governments keen for the jobs. The tricky part is guessing future capacity. If you build too much expensive capacity and don't use it then you lose money. Conversely, under-capacity and chip shortages can hit the bottom line just as hard.

AMD hopes that by offering its fabs to other designers it will be able to reduce this drag on resources. ®

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