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AMD cuts its chip orders with Global Foundries in 2014

AMD’s fabrication partner, Global Foundries, was spun off by the sale of the company’s in-house fabs that no longer earned it any money. Because the costs associated with moving from one node process to a smaller one are astronomical, it wasn’t in the company’s best interests to keep pouring money into a fabrication plant that, while efficient, couldn’t keep up with the speed and enormity of Intel’s fabrication plants. AMD has now recently agreed to an amendment in the contract it holds with Global Foundries and plans to pay a fine amounting to $320 million over the course of the next year.

“Wait, why would they do that?”, I hear you ask.

For the last couple of years AMD’s issue hasn’t been supply of chips, but rather the chip’s performance. Because of their history with the fabrication plants that Global Foundries now heads up, they’ve always been its biggest customer. Despite pouring millions of dollars in cash into the partnership, AMD has yet to transition to the 22nm process and although the fabrication process is pretty much taped out, they have to begin competing with Intel again on at least one front – power consumption and heat generation. That’s something they currently can’t address because they’re still stuck on 32nm chip production lines.

In addition, various other companies are opening up their fabrication plants to other customers at reasonably cheap rates. Samsung now has a 22nm-ready plant that already services companies like Apple and Samsung’s own product lines and Intel recently opened its fab plants to anyone looking to make products on the 22nm process, with the possibility of 14nm propduction being tapered out by the end of next year. Global Foundries just can’t compete and, by extension, AMD can’t compete.

So the companies are now amending the original agreement that allowed Global Foundries to be AMD’s main chip partner until the end of 2014. By paying $320 million in a fines for a change in contractual obligations, AMD will lower the amount of chips it orders from the fab plants and will undoubtedly look to invest that extra money into a new fabrication partner or to keep the company in a profitable state as it readies itself to weather the storm that will be 2013. The fine is actually listed as a “termination payment”, giving AMD leeway in deciding where to go once its payment for chip orders in the first quarter of 2014 are done – it may stay with Global Foundries if the company secures funds for an upgrade to the 22nm process, but they need to have that down to a T as soon as possible – neither GF or AMD wants to incur losses in the future due to poor yields and possible delays.

Next year will hold some interesting challenges for the chip maker, including the release of the HD8000 series, codenamed “Oland”, as well as Intel’s Ivy Bridge follow-up, Haswell. You might miss it all, though, considering the fantastic amount of games on offer to play being released in the first two quarters.

Source: Tech Report

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