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AMD Considering Getting Out of Fabrication Business
mytrip writes "2007 has not been kind to AMD, but it's surprising to hear rumours that they might be considering outsourcing chip fabrication. Analysts are predicting that AMD will try to cut costs by moving some fabrication elements out of the company by early next year. 'One Citigroup analyst is predicting a "transformational move" that would result in AMD's lower-end CPUs being manufactured by a third party and possibly selling off part or all of its Dresden, Germany facility. Another report from Goldman Sachs outlines the investment firm's belief that the company will leave manufacturing completely in the hands of third parties.'"
but this might actually be a "good thing."
Why? Because the main reason that no one but AMD can curretnly compete is because of the hight cost of the fab's... If third party fabs, capable of producing transistors the size that Intel makes, start springing up around the world we will probably see other design companies come out of the woodwork and start producing innovative and competitive chip designs.
If Via, for example, could produce chips in a 65nm fab in reasonable volumes... they might compete for the laptop market.
It may not be the best move for AMD, but for the buying public it should encourage innovation and competition. Which ultimately benefits everyone.
Sometimes the best solution is to stop wasting time looking for an easy solution.
Well, I'd say NASA should outsource launch services, or at least start to look at doing it (and in fact they are with the COTS program.) I would argue that they're job should be to do new and unprofitable things out in deep space, and let commercial companies handle launches (which can be profitable).
This isn't entirely offtopic, because I'd say that that may be the approach AMD is taking here. Lots of companies can make silicon chips with ever smaller features, its just a matter of time and money, and AMD can depend on someone being able to do the job (like launching to LEO for spacecraft in a few years hopefully). Instead AMD's job is to innovate and design new chips and letting someone else actually manufacture them has the chance to reduce their costs and make them more agile, since they can focus their core competency on design, and let other focus and innovate on manufacturing techniques.
(Note, I'm not well versed on the silicon industry, but this is my intuition as a generally technical person)
add to this many outsourcing companys don't have a very good understanding on your business and it's a recipe for failure. I work in an industry where out sourcing is common, and most of the time the contractors are hopeless.
If you mod me down, I will become more powerful than you can imagine....
1/ stop hiring young morons to write articles like this.
2/ check the files for old stories.
someone trots this garbage out every once in a while. for those that have brain cells in proximity to work together as a memory cell, AMD used to FAB out there chips. and they languished in red ink all the while. The only time that AMD ever made money was when the build there own FABs and ran them to poduce enough chips for the market place. Who would make these for them. Small companies are a joke, Motorola never made enough chips for Apple to make Macs, IBM is constantly coming up short on chips for other people. ask Sony how they like being shorted on cell chips for the PS3.
AMD has a memory. They will not give up the power to make their own chips, so they can go back to being enslaved by some dumb ass partner who never comes through when they need volume to fill the market demand.
Take the writer of this article and the financial folks who are guessing by examining the coffee ring in the bottom of their Starbuck cups after all night bender of expressos so they are wired up like a chipmunk mainlining crystal Meth, and recommend to their bosses that they sell off their offices, and these guys can rent space by the day in a temp office. see how they like having no security or long term planning
Fraken idiots for writers.
You can never outsource your core business, the thing that makes you unique and that you hope gives you a better product compared to other companies. If AMD wants the most leading edge new techniques in chip manufacture, they HAVE TO do it themselves. If you outsource, all you get is industry standard last-generation technology. If they give up manufacturing, they have given up half of their core business, and it will be very difficult for them to ever make a product innovative enough to compete. I'll put it this way. When a new CPU line comes out, often every other cycle is a real redesign, and the cycles in-between are a die-shrink to smaller features and often a bigger wafer. Half of the innovation in chipmaking is the die shrinking and wafer sizes. They can't leave half of the innovation they need to keep up with Intel in the hands of someone else.
To own and run ones own fabs, one has a LOT of cash tied up in fabs. That means carrying tremendous debt levels, and given AMD's shaky financials, at a higher interest rate than Intel. This gives Intel a competitive edge, just from the finance side. Selling the fabs would let AMD reduce its debt levels, improve it's balance sheet, and possibly cut costs.
AMD's "tough" years are in part because as a company with its own fabs, it has massive fixed costs (and the interest expenses associated with it), which means that when cyclical demand trends downward, their numbers get destroyed by the high fixed costs. High fixed costs are irrelevant to huge market leaders, but the nimble competitor gets eaten up when things get painful.
OTOH, if one can move capital intensive projects off balance sheet, the company's financial reports improve, which can improve their bond rating and lower their interest costs on other areas.
Right now, AMD must focus on chip design, chip manufacturing, chip marketing, and financial maneuvering. Going fabless would let them focus on designing and selling chips, instead of manufacturing them and managing complicated financial operations to fund everything.
Whether they gain a competitive edge by owning the fabs is another question, and the only people that know that are inside of AMD. Whether the CEO and Board will ask them is another question, but AMD's internal guys know whether they are really good at manufacturing or not.
Okay, you're talking about foundries, but not high-end microprocessors, which have demands all their own.
For one, it requires both design and production competency. AMD is very competent at both, as they have to be in order to be in the same ball park as Intel. Without AMD-owned equipment with AMD engineers tweaking the knobs, the already existant gap between AMD's and Intel's manufacturing would widen. As you say, the foundry companies don't care who runs through its lines, they have many other designs, so they can't go in and tweak every aspect of the fabrication process for a single customer. But AMD requires such tweaking in order to get as much performance out of their chips as possible and be competetive with Intel.
For two, talking about enourmous capital expenditures, AMD just finished building Fab 36 and is in the process of retooling Fab 30 into Fab 38. It would be very foolish to simply throw those investments away, selling the fabs would not come close to recouping the costs of building them. The only way to recoup those investments is to make parts and sell them.
Before their most recent slump, AMD was capacity limited. Getting rid of their fabs and going to foundries for whom AMD would be nothing more than another favored customer would not fix this problem. Bringing Fab 38 online will.
It might make short-term (as in the next few years) financial sense and might make short-term investors happy. But it would only happen on the condition that AMD is permanently abandoning any aspiration of being the #1 cpu maker. It could work if they decided they wanted to be an also-ran chip maker like Via or Cyrix, and it would only be a matter of time before Intel finished eating up what remained of their marketshare and they got out of cpus entirely. Since they already sold off their flash business, that would leave only ATI, and what we know today as AMD would cease to exist.
But if that's what they want to do to make analysts and investors happy, then its a great idea.
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