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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.'"
Lately, IBM and AMD have been the only firms out there capable of keeping up with Intel's process advances, with most of AMD's due in significant part to IBM. This move could well usher in an era of consumer level technology stagnation. We saw what Intel did while AMD was a non-competitor (how many damn generations did they ride the basic pentium pro architecture??) and how badly they react to renewed competition (Yeah, great job on both the 1.13ghz P3 and the whole Netburst architecture). Intel has just in the past year or so bothered to give consumers worthy processors, and now if IBM doesn't decide to take a look at the consumer market and keep Intel on its toes, well, we're fucked.
:'(
Awesome news! Next up, Torvalds indicted on murder charges when a mailing list discussion gets so heated he sticks a pointer straight through a face? Netcraft confirmation of BSD's death? Ron Paul is assassinated as republicrats cheer in the streets?
but this might actually be a "good thing."
It may not be the best move for AMD, but for the buying public it should encourage innovation and competition. Which ultimately benefits everyone.
Don't even kid about it. It's a path that once taken will be very hard to revert for AMD. Before you know it they'll outsource the rest of their fab, then sell their design to someone, and all that will be left, is a patent troll.
Last time when we discussed AMD's poor financial performance, I critized a guy who said we should buy AMD to support them, or the future may be quite grim, with Intel (being de facto complete monopolist on the x86 market) raising prices and stagnating.
When I read THIS article, I gotta say, that fear makes me think more like this guy and I'm suddenly feeling the need to buy AMD chips for the hell of it. I know it's wrong.
I always suspected that if they continue performing badly, IBM could consider purchasing them and entering the market of x86 chips. Both companies have worked together for a long time and share lots of technologies, some fab and many processes and design decisions.
Thing is, I didn't expect AMD to begin falling apart by itself, by selling some of its fab business. If they continue trying to minimize their losses by destroying themselves in this way, soon no one will want to have anything with them at all.
What a sad fate.
You line of logic is spoken like someone who knows nothing of the semiconductor market.
The semiconductor market is one of the most brutal markets in existence. Capital costs are through the roof, demand is unstable and hard to predict, and the margins are razor thin. AMD is doing itself a favor to extract as much of itself out of the market as possible and focus on design. Design and production are as different as night and day. Competency in one speaks little about competency in the other.
What AMD is gaining is mass market production above and beyond what they currently have. Do they have to pay a middleman a cut? Sure, but in return they are getting access to massive foundries that can produce on an industrial scale. The foundry doesn't care what runs through its lines, so long as something is running. The more they run, the cheaper it is. It isn't like they will just run AMD chips. They will run a whole pile of other chips that run on the same equipment. The result is that they can sink the massive capital costs that a modern day semiconductor factory costs and run enough volume to make it profitable. Short of becoming diving into the foundry business and running lines for other companies, AMD has no way of running the massive volume it takes to make justify the horrific capital costs that a cutting edge semiconductor foundry demands.
The semiconductor foundry business is a cut throat world to be in. Massive capital costs, low profit margins, and over capacity makes keeping a foundry running a full time struggle. AMD is doing itself a favor by doing what AMD does best. AMD designs good chips. AMD isn't a semiconductor foundry. The slightly higher costs in paying 'middlemen' is pittance compared to the horrific cost of dropping a multi-billion dollar foundry down every couple of years while at the same time selling and junking your old multi-billion dollar foundries.
No this is very dangerous! If AMD wants to survive it should not give up its fabs. Charter and the other foundry companies like TSMC, UMC, Grace have their own competitive pressures, and while AMD will be a prefered customer, the foundry fabs will not be totally dedicated to AMD. Put another way by having their own fabs, AMD can maintain bleeding edge process technology customized to its needs, with high logic performance and high density, and a very low manufacturing defect rate suitable for microprocessors. This is what keeps AMD competitive with Intel. The foundry companies often focus on older but more profitable process technology sweetspot that would not be competitive. Keep in mind what killed Transmeta! They initially used IBM process and did well for awhile. Then they switched to TSMC, got nailed by process reliability problems, delaying their next-gen product and were crucified in the market place. The rest is history (as is Transmeta).
It's called voting with your wallet. It's pretty much the only thing you as a single consumer can do to affect these large companies, the other being to spread the Word. Not only is it the right thing to do, it's your responsibility to consider who you are buying from.
It looks to me a lot like the article about Microsoft divesting its massive cash reserves a while back. It's "analyst" speculation by people who, by virtue of being in the "analyst" business don't actually understand the industry they're speculating on. This is what they think AMD will do because "that's how it's done." Never mind whether or not AMD thinks it'd be a good idea.
Speculators speculate on money moving, so it's rather unsurprising that they'd suggest that the response {large company} would have to lackluster performance would be to spin off the cost centers and reorganize to maximize the synergy of the core competencies.
Now, it is beneficial to make sure you're only worried about the business you're in. A lot of companies in the 90s for instance had huge in-house IT departments despite IT not being the thing that makes them money. They'd have a lot less headaches if they'd subscribed to an IT service to take care of their needs there, freeing them up to worry about the thing they really sell. You wouldn't worry about that any more than you'd worry about a company purchasing paper instead of milling it themselves.
To my untrained eye, AMD appears to be in the business of selling microprocessors. The manufacture of those isn't an incidental part of the business (the manufacture of the tools to manufacture the chips would be such an outside activity), but a key layer in their vertical integration. Unless their numbers are really small, I can't see why it'd be cost effective to drop that.
Can you be Even More Awesome?!
How about if AMD used its debt investments in new fabs in Germany and NY to accept outsourced fabrication for other companies it doesn't suffer from boosting? That would make a lot more sense than getting in debt to sell capital facilities at a loss of both investment and competitive control.
These analysts don't know anything. They just want every business to cut costs and debt while still producing the most revenue, for the most short-term profits, even if trying to do so is a stupid strategy that wrecks the company. When was the last time any published equities analyst was right about some surprising transformation of an industry leader? If they understood business strategy, they'd be running one, or privately advising one on equity development. These are people who can't even hold a job speculating in the market, so they try to make it speculating on the market.
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I was an AMD consumer for ages based on price and performance.
I just built a new AMD rig however for two reasons.
Firstly, At the very low-end price point, I found AMD still performed better for that price range. I bought a Brisbane dual-core proc for $59. It overclocks unfairly well, and the peformance I get out of it is insane given the price. I haven't dared really push it over the edge, but consider just the latest review off NewEgg.
"This chip's a little beast, I've got the combo running stable (prime 16 hrs) @ 3106 (9.5,x326 @ 533 htt 3x) on air! "
Again, we're talking a measly $59 USD.
Secondly, it seems AMD got Intel dead to rights on their anti-trust suit. Several vendors and partners have offered credible evidence, and Intel is claiming their IT department deleted all pertinent email that would be the nails in said case. Again, they sound guilty as sin. I will not financially support such a company.
Even if Intel offered slight performance increase for the money (which isn't the case here) I wouldn't buy their product.
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